St Joe Co (JOE) 2013 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the St. Joe Company's full year and forth quarter 2013 earnings results call.

(Operator Instructions)

As a reminder, this conference is being recorded. I'd now like to introduce your host, Park Brady, Chief Executive Officer. Please go ahead.

Hello, everyone, and welcome to the Saint Joe earnings call for the full year and fourth quarter ending December 31, 2013. This is Park Brady, and joining me on the call is Marek Bakun, our CFO. Before we get started, Marek will cover forward-looking statements. Marek?

Thank you, Park. Some of the information we will discuss in this call is forward-looking. This information include 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 of 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 today's our press release and the SEC filings, which documents are publicly available.

Our statement is as of today February 27, 2014. We have no obligation to update any forward-looking statements that we may make. Now, I will turn it back over to Park for opening comments, after which I will review the full year and fourth-quarter 2013 results.

Thanks, Marek. The company took a number of important steps in the overall strategy development in 2013. We put approximately 383,000 acres of Timberland under contract with AgReserves which is expected to close next week.

Although the closing is subject to a number of conditions including approval by the Company's shareholders on Tuesday, the transaction is proceeding as planned. The acreage in the transaction is substantially all of our land designated for forestry operations, as well as other lands that are not utilized in our residential or commercial real estate segments or are resort, leisure, or leasing segments or in not part of our development plans.

Next, the River Town projects in Jacksonville is also under contract. This project, as we have said before, is outside of our core area of northwest Florida.

The St. Joe Clubs and Resorts, a private membership club, was launched at the start of this year. This club consolidates two marinas, three golf clubs, the Watercolor Inn Beach Club, all of these under one umbrella. St. Joe Club and Resorts would give a significant advantage as we compete to our share vacation rentals in the area as well as incentives to new home buyers and our projects. We are off to a strong start in the membership sign-ups this year.

In 2013, we also commenced the process to update and extend the previously approved West Bay sector plan to establish a long-term land use master plan for active life style adult community that will be based on value health in the environment. Pier Park North is a joint venture to construct a 330,000 square-foot retail lifestyle Center in Panama City Beach. The anchor tenant, Dick's Sporting Goods is planning to open in the next two weeks with more tenants to follow over the coming months.

Lastly, we will have and continue to explore new and existing commercial and best uses around the airport, residential development opportunities, and our port at St. Joe. I will turn it back over to Marek for a full review of our full year and fourth quarter 2013 financials.

I will make some brief comments about the full-year and fourth-quarter 2013 results before we open up for your questions.

Revenue in the fourth quarter of 2013 increased 50% over the fourth quarter of 2012. The increase was the result of timing and real estate sales which increased to $17.2 million in fourth-quarter of 2013 as compared to only $4.6 million in the fourth quarter of 2012.

For the full year 2013, revenue ended at $131.2 million as compared to $139.4 million in 2012. In 2012, revenue included $23.4 million which came from rural land sales, primarily from two transactions which are not easily repeated.

In 2013, we recorded an impairment charge of $5.1 million related to assets primarily in our resorts, leisure, and leasing operation segments that we operate. In 2012, we incurred an impairment charge of $2.6 million related to parking facility which we agreed to cease operating as the parking facility for a period of time. Even with the $5.1 million impairment charge, the net income for the fourth quarter was $0.5 million compared to a loss of $8.6 million or $0.09 per share in the fourth quarter of 2012.

For the full year 2013, net income was $5 million compared to $6 million in 2012. As with revenue, rural land sales in 2012 accounted for $16.8 million of the total of the $6 million of net income.

For the full year 2013, revenues and gross margins increased in the company's residential real estate business, commercial real estate business, and resorts leisure and leasing business while revenues decreased in the forestry segment. There were no significant transactions in the companies rural land segment in 2013.

Going into each business segment. In our residential real estate business, the number of lots sold in 2013 as well as the margin increased substantially as compared to the prior year. The increase was broad-based at largest volume occurring in two communities.

62 homesites were sold to a homebuilder in our Water Sound community and 87 homesites in Breakfast Point community. The margins increased from 31% in 2012 to 42% in 2013. The net income for the segment was $4.5 million compared to a loss in 2012 of $6.8 million.

Commercial real estate business increased from $10.4 million in 2012 to $10.9 million in 2013. During 2013, there were eight commercial real estate sales as compared to six in 2012. Two of the commercial real estate sales in 2013 totaled -- totaling $6 million were built to suit the commercial operating properties that were constructed and were leasing under long term leases totaling $400,000 in annual rental income. The net income for the segment was $3.3 million in 2013 as compared to a net loss of $0.2 million in 2012.

The resorts, leisure and leasing operation had a solid year. This segment is comprised of all recurring revenue streams including vacation resorts, golf club and marinas, as well as retail and commercial leasing operations.

Revenue increased 15% to $50.8 million. The increase came from increased number of homes in our vacation rental program, higher average room rates, and positive impact of our commercial lease that commenced in 2012. $4.9 million impairment came from the segment.

Our Timber segment revenue decreased by $3.6 million in 2013 compared to the prior year. The volume of Timber delivered was down by approximately 255,000 tons as a result of unusual higher amounts of rain over the summer months which impacted the harvesting. And harvesting limits include an AgReserve sale agreement which affected the fourth quarter of 2013.

Although the volume was down by 17%, the average price per ton was 10% higher. Net income for the forestry segment was $13.3 million compared to net income of $13.5 million in 2012.

Rural land revenues vary drastically. During 2013, there were no significant transactions in the Company's rural land segment as compared to nine land sales for $23.4 million during 2012. We ended the year with approximately $22 million in cash and $147 million in investments for a total of $169 million.

Our debt increased by $8 million, primarily due to the Pier Park North project which ended the year with $6.4 million in debt. The remainder of the debt on the balance sheet relates to in substance to seize debt secured and pace by treasure security and the company fixed determinable portion of the CBD debt in four of our projects. We expect to increase our debt as we build out the Pier Park North project over the next few quarters.

Our capital expenditures increase in 2014 to $42 million as compared to $23 million from 2012. The increase was mostly related to the Pier Park North development and development costs for increased volume of residential loss. Our operating corporate expenses declined by $1.9 million in 2013 compared to 2012, primarily due to reductions in employee costs and lower real estate carrying costs.

In summary, the increase in revenue and margins in our residential real estate, commercial real estate, resorts, leisure, and leasing as well as reduce operating costs contributed to the bottom line results. Now Park would like to make some closing comments.

As we wrap up, I can tell you we are pleased with the quarter and the year. The increased revenue and margins in residential real estate, commercial real estate, and resorts, leisure and leasing operations all contributed to the bottom line. We will continue at cost and investment discipline to ensure bottom-line performance in all environments to increase value to our shareholders.

As for the Timberland transaction, the sale would allow the company to concentrate on our core businesses. These are the resorts and lodging, the development or remaining land portfolio, the port, and an active adult community. After this deal is close, the Board and Management will work together to explore a full spectrum of options for the company's capital.

These options include but are not limited to dividends, stock buyback, acquisitions, diversifications, and other capital allocations. As we have said in the past, we are taking our time and will keep you posted as we make progress.

Operator, let's open it up for comments and questions.

Thank you.

(Operator Instructions)

And our first question comes from the line of Buck Horne with Raymond James. Your line is open.

To start with, do you guys have any better idea of how you want to structure any installment sale notes and how you are going to use that to bring cash back into the Company, and how quickly will any cash be coming back to St. Joe in the next 12 to 24 months?

We are currently anticipating a portion of the transaction to be in Timber notes. We will make the determination based on the market conditions at the time we will close.

Okay. That's all you want to say about that? Okay. Can we talk a little bit about the approval process for the land-use plan and where is -- what status you are in with that? Describe the process of getting the -- that entitlements, that expansion into Walton County done.

This is Park speaking. This is, again, a long-term project we have been working on for two years. We have it in an existing sector plan, which was approved 10 years ago when we did the West Based sector plan, which included the airport development.

What we are going through now is, and we have been planning this for about two years, we will make our final -- or first real official application by the middle of March. That is under a sector planning process, as well. That sector planning application will take the existing 70,000 acres and add a new 40,000 acres to it and with very little modification of the original piece, there will be some minor corrections based on the timing.

The fact that that was done 10 years ago, we expect that the process will take us over a year. It will involve the local counties of Walton and Bay counties, as well as some state entities. We have had open houses to get input from the community, and in anticipation of some of the concerns that might be addressed, we have shown them some tentative plans.

But our application, which is very extensive, will come out in March. The middle of March we will actually be making official application. Does that answer your question?

That's very helpful. I appreciate that.

I guess to that end, you know, I think you made a comment on the previous call that you are, and you mentioned in your press release that you're still exploring the possibility of a very large-scale adult targeted residential project. When we are talking about, you know, potentially over 100,000 acres that could be allocated to that type of project, I think it's a little hard for some people to get their arms around fully. So are we talking about trying to take the template from, say, the Villages and import it into Northwest Florida?

Can you explain a little bit about the concept you guys are thinking about? And how you are going to appeal to that quantity of migrating retirees?

We feel that -- we done a lot of study about the demographics -- the people retiring. We know the numbers are there. We feel like we are a little closer to where people are migrating from from the north.

We have a lot of natural features on the 100,000 acres of land. We got doon lakes, we've got bays, we've got rivers. We have 15 miles of inner coastal and our project is not going to be -- it's going to have lots of open space when we come out.

We feel like this is going to be a very -- it won't be a template of the Villages, but the Villages has been very successful. We think that people now would also, if we can add to that template things like environmental concerns, learning, health, as well as the active piece of a retirement community, we feel like we can add to that template that is already out there and has been very successful.

Okay, that's helpful. I will drop out of the queue and let the other guys ask a few and I'll maybe jump back in. Thanks, guys.

Our next question comes from the line of Aaron Scully with Janus Capital. Your line is open.

Hey, guys.

Hey, Aaron.

Just curious on that comment of going from 70,000 acres to 110,000 acres. Is there like an added cost to converting that 40,000 acres, I guess more entitled, like is there additional taxes? Outside of just your time and money to change those 40,000 acres, is there any annual cost for going from 70,000 to 110,000?

Aaron, it is the 110,000 will be treated just like the 70,000 today. It has the entitlements on it, but until we change the use, the cost doesn't change.

We still timber that land. We still treated as agricultural. If that is what it is used for, that's what it is. It's when we plat it that it actually becomes a taxable piece of land.

I guess just to follow on to that, is there a difference in your mind in the value of that land between that 70,000 and 40,000 today? It would seem that there would be some difference in value just in entitling it, but just curious about how you guys think about that.

Obviously, to have some entitlement is more valuable than not having it, but what it does when we look at the overall piece is it takes land that is a little further away from where things are today. You know, there is not grocery stores near it. There is not shopping near it.

It is further removed. by adding this 40,000 to it, we can actually start in places where we are close to where there is lots of things already in place. Our three golf courses that are already there, the grocery stores that are right down the street, the hospital is down the road, Pier Park North which has -- the whole Pier Park area which has been a very successful shopping area. Lots of big box shopping, which is not available in other retirement communities that are right next to us. So it makes more sense, especially when we think about the adult community piece of it.

Okay. That's helpful. You mentioned Pier Park North. Apologies if you already addressed this; I got on the call little bit late. Can you give an update where you are with the project in terms of pre-leasing and opening date. And then, how are you guys thinking today about the cash on cash yields, roughly in year one. Or how you see that evolving over the next few years?

It is Marek. Pier Park, as Park mentioned, the first store which is the anchor store, is slated to open in the next couple of weeks, so the project is well in process of the 330,000 square feet. It's being built in two phases.

The first phase is currently under construction. We anticipate to continue to increase the leases, but they have been on target and have exceeded our expectation through this date. It is, as Park mentioned, a location that is becoming a center for commercial activity, retail activity in this area. So it has been a good project that is progressing as planned.

All right. Sounds good. Just one last question for me. Just the Port and maybe an update on where you are with the dredging and any other initiatives there.

We have gone through our -- we funded a study. We are part of the funding that state came up and assisted with that through the port authority. That study has been done.

We are now going out for pricing on it. The state has said that they would, if we can find and prove user, which we think we have good opportunities to do that, that they will help fund the dredging piece of it. There's a lot of pieces to put it together, Aaron. But we feel that the port still has lots of potential and we are putting time and energy into it.

Great. Thanks.

Our next question comes from the line of Sheila McGrath with Evercore. Your line is open.

Thank you. Good afternoon. I wanted to get a little clarification.

At year end, it looks like you have about $169 million of cash and investments, or liquid investment. Does that include proceeds from River Town already, or is that to close in first quarter?

That does not include the proceeds from River Town. River Town is a real estate transaction that is currently going through the due diligence and is under contract, but has not yet closed.

Okay. And then River Town -- once River Town and the Timber sale close, what do you think the cash balances -- you know, the level it would go to, including both of those transactions?

Yes, so as we released, the Timber transaction subject to changes -- is $565 million. We are looking at the split between notes and actual cash, but our intention would be that if we do have some notes, we will look at options to monetize the majority of that.

The River Town is $43.6 million at closing plus some subsequent items. So if you add those numbers, it's on a scale of $600 million in total. Clearly, we have some tax obligations that we may have to deal with as part of those transactions. But that's the scale of numbers we're talking about.

Okay. Is it in the 10-K, or what you think the tax obligations will be?

Again, the transaction is not yet closed, so we are looking at opportunities. The 10-K disclosed our federal net operating losses that we have as of December 31. Clearly, we have an opportunity to utilize those and we will look at other means, such as the installment notes to see how we can minimize those taxes.

Okay, great. And then just moving to the adult community.

I think in the past that you may have mentioned that, you know, it might require better access via other locations to the airport. I am just wondering, for such a project of this scale if it's going to entail the introduction of other airlines to the airport, or how do you view air access now and the scope of the adult community?

I would say that it is almost like a chicken or egg, Sheila. As people realize the scale and scope of this, they want to serve the people that are there. As it grows, there will be more demand for passenger seats.

You said earlier about having restricted access or needing better access to the airport. We really have great access today. I mean, this property runs through and around the airport, but at its furthest reaches you are about 20 minutes from the airport.

No, no, Park, I meant like where direct flights are coming in. Sorry.

The airport, as well as the community, has been working actively to try to get other -- more options into the airport. The airport has been successful.

I think in today's paper, it came out that the traffic was a little bit down this year because of a bad winter and the cancelled flights coming out of other areas, but, yes, we all acknowledge that we would like to have some more seats coming in. It think that this community will actually drive some of that happening.

Okay. You mentioned, Park, the relaunch or launch of St. Joe Clubs and Resorts. I'm just wondering if you could give us a bit more detail on the new strategy that you are introducing to the club and resorts operation.

Well, what we did, Sheila, was when we look at the clubs and resorts, we actually saw that we were allowing competitors, guests and owners of other -- that were using competitors in the vacation rental business to have access to our facilities. We said, no, what we really need to do, because we have got the world-class facilities that are here. The beach club, the three golf courses that we have, and we said, let's combine those all into what we are calling the St. Joe Clubs and Resorts.

Let's use that to leverage to the best advantage to us. Now in order to use those facilities, if you are, for example, on the vacation rental side of the business, you need to be managed by us if you want to use the club or if you want your guests to do that.

We also are using it as a driver for the real estate. Is it the -- if you recall, the WaterSound North project, which we are now calling WaterSound Origins by the way, is that WaterSound Origins we open up last summer to move forward with the conventional project. There's 1300 units in it, so we are giving our buyers no initiation fees and reduced dues as part of an incentive to get into that real estate.

So it is twofold for us. It is to grow our resorts and lodging and vacation rental businesses, as well as an incentive for our real estate side. And will in future be an incentive for the adult community.

Okay, great. One last quick question. Just if you could characterize homebuilder interest. Is it at WaterSound Origins and Breakfast Point, or has anything picked up at the previously kind of very quiet RiverCamps and other projects?

RiverCamps is still quiet. We're going to have to push to get lots in place to beat the demand for Breakfast Point and WaterSound.

Okay, great. Thank you.

(Operator Instructions)

Our next question is a follow-up question from the line of Buck Horne with Raymond James. Your line is open.

Hey, thanks. Just a couple clarification points. When you guys mentioned 52 sites sold in WaterSound and 87 sold in Breakfast Point, was that for the full year or was that for the quarter?

It's for the full year.

You have those numbers, or what would you sold other neighborhoods for the quarter?

We only had 140 completed lots in the WaterSound Origins piece. Marek is looking for the numbers exactly right now.

We released 62 of those. Remember, we were holding that community back because we anticipated we might use it to start our adult -- last year but when we decided to open up, we went out solo those 62 lots. We are looking for the numbers right now.

We haven't marketed it. On March 15 is our first open house and announcement of the project. We wanted to make sure that we are ready for -- to advance it, so we really hadn't pushed that project at all.

The old WaterSound North, which is WaterSound Origins now -- they've done no marketing on it until two weeks from now in March when we do the major rollout.

Okay.

There were 62 lots in the WaterSound North Origins project. They closed in the third quarter, so there were no transactions in the fourth quarter, it was one contract. As far as Breakfast Point, there were transactions in each of the quarters with 45 of the 87 lots closed in the fourth quarter.

Thanks. That's helpful. Where are you seeing pricing power?

Is the pricing power in Breakfast Point accelerating now that you are getting some velocity? What other communities are you pushing pricing in?

We are looking at every community and making the determination. Real estate is local and each community has its own attributes. We are noticing pricing power, and we also have some back end participation in some of these contracts. Some of the margins that -- I mentioned increased to 42% as a result of pushing pricing.

Okay. The last one, could you help me understand the impairment charge a little bit more, the $5.1 million? Exactly where did that come from and how did that need to be taken?

Accounting literature has very specific rules that I use when reviewing long-lived assets. Hence the recoverability of the bases on discounted cash flow. So this asset came from the resorts leisure and leasing operations. There was a triggering event resulting in a need for an evaluation of the fair value to assets.

Can you tell us which asset and why it was triggered?

We don't want to speak to the specific asset because as we go out into the communities, it's -- from a PR standpoint, we just don't want to speak to that asset, because it may have an incorrect perception. I hope you understand that.

Okay. That's fair. Okay. Thanks guys.

And I am not showing any further questions in the queue at this time. I'd like to turn the call back over to management for closing remarks.

I think that's me, isn't it? Okay. It sounds like we've answered all the questions, so thank you for your questions and for listening. We will talk to you in the next 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 good day.