Park Brady - CEO Tom Hoyer - CFO

Aaron Scully - Janus Sheila McGrath - Evercore Buck Horne - Raymond James

Hello everyone and welcome to 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 statement.

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 and we have no obligation to update any forward-looking statements we may make.

Now I’ll turn it back over to Park for some opening comments and after which I’ll 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 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 publically announce that we were exploring potential transactions for our forestry and rural lands. Please keep in mind that this is all part of our ongoing asset evaluation and long term corporate strategy developed.

We are still working on both for making good progress in that regard. Given the diversity of our assets and improvements across real estate and homebuilding 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. Now, I will turn it back over to Tom for a review of our second quarter financials.

Thanks, Park. As usual, I’ll make 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 in 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 are higher residential lot sales in the some of our projects are lot prices, a larger number of homes in our vacation rental business, lower real estate caring cost, including property taxes and CDD interest expense and lower pension expense. I will explain on these drivers and other areas next.

In our residential development business, 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 $0.1 million, 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 unfortunately improvement is due to lower property taxes and CDD interest. The CDD interest is lower because as you recall we prepaid CDD debt obligation at our RiverTown project late last year.

Our Timber segment revenue was essentially flat in the second quarter of this year compared to the second quarter of last year, but net income increased over 22%. We shipped less tons of timber this year due to temporary slowdowns or shutdowns of our customer plants but higher timber prices resulted in a 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 the segment is comprised of all the recurring revenues streams including vacation resorts, golf clubs and marinas, as well as the retail and commercial leasing operations.

The revenue in the segment, which includes the sale of our one of leased properties in the second quarter was up almost 17% quarter-over-quarter and the segment income was 50% higher. The improvements are a result of the sale to commercial leased property, more homes on our vacation rental program, higher average room rates at our inn and our vacation rental homes and two commercial leases that commenced late last year.

Revenues for both the commercial and rural land segments are 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've mentioned before that commercial is a longer term play for us and at selling rural and is not in our plan for generating revenue profits on a quarterly basis.

Just for clarity however, we do have some rural land listed for sale on our website but it's noncontiguous and non-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 that debt is a mortgage debt related to a commercial property that we sold several years ago.

That debt has been deceased, which means that repurchased treasury securities debt, as they mature will be sufficient to retire the debt. You can find us pledge treasury securities on the asset side of the 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 South (ph) residential projects. We temporarily reflect that debt on our books and pay the associated interest expense until the property that secured the debt is sold.

The land owner, typically the home owner 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, this debt balance fluctuates on our balance sheet as we add platted lots to our inventory, which increases the CDD debt balance and as we sell lots which decreased the CDD debt balance.

Now Park would like to make some closing comments.

Thank you, Tom. As a wrap up, let me reiterate that we are working diligently on the 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 reserve communities and rising demand from National 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 an hour ago and in our 10-Q which we will file later tonight. Operator, let’s open it up for questions.

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 line is there?

We don’t have any specific timeline. It’s a complicated procedure to get the funding, which will probably be a combination of different government entities.

The funding will come through the Port Authority which is in Port St. Joe.

So 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 fee channel usable as a deepwater port.

Okay, and has any announcement that you intent to dredge the port, has that led to any additional interest or activity at the port? Have you started seeing or receiving more calls on potential tenants there?

We’ve 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 are saying to us, it’s very important to us to know that there is a timeline that the dredging is going to happen. We signed two letters of intent that we announced with Enova and Green Circle and those are contingent on the port being dredged, but with no time commitment and we’re working on getting that done.

I guess just a final question, that AKA announcing the potential for some sales of the timber in rural land. I’m curious hypothetically, if you were to see a significant amount of cash, how would you prioritize the uses of that cash, and would one of those potentially be a share buyback?

We would be looking at all options Aaron. We have no present plans if we generate cash out of a small or large sell, it would be part of our strategic planning which we’re in the process of working on right now and one of the pieces of that would be what strategy do we use to deal with excess cash.

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 like selling lots to builders. Just if you could give us little bit more insight there?

Well because of the land holdings that we have Sheila and the location that we are, we feel like we have got the real ability to have a large scale active adult project, and the first piece of that is working with the governmental agencies, the planning departments, the counties, the federal and state to get our entitlements, to make that happen. And so we have had our first preplanning meetings with those agencies in the last 10 days, and so we're starting that process.

I can't tell you where that's going to go other than, our intention is to plan it well and to execute it well.

So do you think it would entail bringing in a partner or you guys feeling comfortable once you get everything with the local jurisdiction that you might do it on your own?

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

And then I noticed like in the public filings, with the court houses and stuff like that. It seems like volume both at the primary communities RiverTown and Breakfast Point was pretty good and also at the resort communities.

I was just wondering if you could tell us a couple of things, just how the pricing trends are going, volumes trends are going and if you have any new builder partnerships that are worth noting?

I would say all those trends are up. It's pretty clear that the market here is doing well.

Again, they are not big numbers for us yet. We feel like that's real positive as we're going forward.

We don't have any brand new partner builders although we have said that we are talking to larger builders who are exploring larger take downs.

And then just most of the activity still on the primary side isolated to Breakfast Point and RiverTown? On the resort side is there any notable pickup, some of the communities have been kind of quiet for a while.

No I wouldn't say this. WaterSound West Beach, WaterSound Beach, Watercolor, they picked up a year ago and really accelerated this year.

There is not much inventory left in those. But no new ones.

We're probably going to, because of that demand and the locations of it being close to the water is, we held of WaterSound for two years, WaterSound North and so we will probably be getting very active in that as residential community. It’s been on hold three or four years.

And then just quickly following up on Aaron's question on Port St Joe, a couple of the contracts that you mentioned or have announced, they were contingent on the dredging. Are you kind of waiting for government to fund the dredging or I just want to get a sense on timing of when you might know more on it?

As I told Aaron, the first step is to determine what the scope of the project is and 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, then we’ll be coming back to the government agencies and saying this is the need.

There is strong acknowledgment both within the state and federal government that ports are very good job creators and all the indications we’ve gotten so far is that we will get support.

Let me kind of circle back to a couple of things. Maybe if we can go back to the timber 8-K disclosure, I’m just kind of wondering strategically what’s the rationale behind going back to or revisiting the possibility of either a large scale timber land sale or timber D (ph) 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 timber land prices in your region of the woods?

What we’re seeing and if you follow the timber market is the market is probably as high as it's been in many, many years and because of that it potentially opens up opportunities for us and those opportunities are anywhere from the scale of what we did back in 2011 to larger than that, to outright sale. So we’re looking at those opportunities right now to see what we feel is best for the shareholder value.

And that’s a market that wasn’t there 2.5 years ago that's now there and we need to look at it. We cannot just ignore that it’s there and that's it's' an opportunity for us.

So, would your preference be a timber D (ph) transaction to retain the land rights like what was done a couple years earlier or would it just being noncore assets that might be sold outright. What’s your preference?

It’s based on pricing, whichever is the best.

Okay. Maybe let's talk a little bit about the active adult project and just, I'm 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 or 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's there is we've presented acreage that encompasses an 110,000 acres and it incorporates the existing 70,000 acres there in the West Bay sector plan. So it's an additional 30 to that.

And that's the size and so it's right here next to us, right next to the Gulf, to the base, the inter coastal and to some of our inner lakes. So it's a prime piece of property.

So this would incorporate the majority of what you have entitled the West Bay sector now?

Yes.

And add on to that. But it would be kind of 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, I guess you guys are still in the preliminary stage of that, but maybe talk a little bit about the commercial activity. There was a comment in the press release just 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 just not actively pursuing as many commercial opportunities?

Well that I think that if you look at Pier Park North which is a commercial opportunity, that's a very hot area right now and 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 in Panama City. But if you look at our Commerce parks there's no activity, basically no activity and if you look at the airport commercial activity, as we said in the past, that's going to be out on the future for us and people are making big moves right now in that market.

So we as slow as our Commerce parks and our airport commercial activity but the rest of it is pretty hot right now.

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

No update, just we're fortunate to have Tom to give us the time to find somebody.

All right, well sounds like we answered all the questions. So thanks everybody for listening today and have a great day.

We'll talk to you in the next earnings call.