Park Brady - Chief Executive Officer Marek Bakun - Executive Vice President and Chief Financial Officer

Buck Horne - Raymond James

Hello, everyone, and welcome to the St. Joe earnings call for the second quarter ended June 30, 2014.

This is Park Brady and joining me on the call is Marek Bakun, our CFO. Before we get started, Marek will cover the forward-looking statements.

Marek?

Thank you, Park. Some of the information we will discuss in 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 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 press release and our SEC filings, which documents are publicly available. Our statements as of today, August 7, 2014, 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 second quarter 2014 results.

Thanks, Marek. The completion of the RiverTown sale in this quarter was a strong follow-up to the AgReserves' Timberland sale in the first quarter of 2014.

Together, the two transactions transformed the company. We now conduct primarily all of our business in four segments.

Residential real estate, commercial real estate, resorts, leisure and leasing operations and forestry. The company has approximately 182,000 acres of landholdings primarily between Tallahassee and Destin.

As discussed last quarter, the submitted the application for a modification of our existing West Bay Sector Plan to add approximately 50,000 acres to that plan. If approved, we will have 110,000-acre project that will have gulf, intra-coastal, bay and lake access.

We are very excited about this project that will be called WaterSound. This project will emphasize value, health, activity and environmental stewardship of a very special part of Northwest Florida.

The application process is moving forward through various agencies and stakeholders and the public. As discussed last quarter, 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 and the WaterSound Beach Club under one umbrella.

St. Joe Clubs and Resorts is giving us significant advantage as we compete to increase our share of the vacation rentals and other resort management opportunities in the area, as well as incentives to new homebuyers in our projects.

For example, since the launch, the number of vacation rental homes has increased 32%. This is a substantial increase which we believe will grow the business as we fill extra rooms.

The AgReserves Timberland sale and the RiverTown community sales have provided the company with liquidity and fortress like balance sheet. We will consider our options in due time, as we assess future cash needs.

I will now turn it back over to Marek for a review of the second quarter 2014 results.

I will make some brief comments about the second quarter financial results before we open it up for your questions. Let me start with the RiverTown sale.

This sale accounted for $43.6 million in revenue for the quarter. The community is located in the Jacksonville, Florida market in St.

Johns County and is comprised of approximately 4057 acres. As compensation, the company received $24 million in cash, $19.6 million in formal purchase money note bearing 5.25% interest that matures in June 2015 and the buyer assumes $11 million in community development district debt on the property.

Of that $11 million of CDE debt, $5.4 million was in the company's balance sheet as of March 31, 2014. In addition, the buyer agreed to purchase from the company certain impact fees over a five-year period as the RiverTown community is developed.

The impact fee credit have an estimated value of $20 million to $26 million and we expect that most of these fees will be collected at the end of the five-year period. Aside from RiverTown, the company sold 25 residential lots in the quarter for a total of $3.8 million of revenue, as well as $1.0 million revenue through commercial transactions.

Revenue for resort, leisure and leasing operation includes revenue from our resort and leisure activities which include activity from our WaterColor Inn, management of the Pearl Hotel located in Rosemary Beach, Florida, vacation rentals program, four golf courses, marina operation and other related activities. It also includes the retail and commercial leasing operations including activity at our Pier Park North joint venture.

The leisure and leasing operation revenue increased $1.2 million or 7% even with the comparison to a strong second quarter in 2013. The increase is primarily due to increased number of room nights rented in our vacation homes business as the St.

Joe Clubs and Resorts program began to take hold and new lease revenue from the Pier Park North joint venture with the initial stores opened in 2014. As for timber, the harvesting decreased to approximately 60,000 tons in the quarter compared to 340,000 in the second quarter of 2013.

The sale of Timberland in March accounted for the decrease. Subsequent to the AgReserves sale, the company sells timber net of cutting and harvesting cost, resulting in lower revenue but higher margins.

The company continues to focus on operating cost. Overall corporate expenses and other operating cost decreased by $500,000 to $7.2 million in the second quarter of 2014 as compared to the same time last year.

The company did expense $3.7 million in timber note monetization in the quarter. This cost related to onetime structuring advisory cost related to formation and structure of the special purpose entity related to the monetization of the timber note from the AgReserves sale.

As for the balance sheet, the company has $679.4 million in cash, cash equivalents and investments as of June 30, 2014. This amount is subsequent to a $35.4 million federal tax payment which was made on June 15.

The balance sheet reflects consolidation of special purpose entities related to the monetization of timber notes resulting in addition of the investment held by special purpose entities and the related senior notes held by special purpose entity. The company, through a joint venture with its partner, continued to develop the Pier Park North project through the quarter.

As of June 30, 2014, total debt for the project was $22.4 million. 14 stores are currently open for business.

In conclusion, as I wrap up, I can tell you that we are focused on our core businesses. As stated last quarter, the board and the management are working together to explore full spectrum of options for the company's capital.

Operator, can we open it up for questions?

Given what happened last quarter, I just want to (indiscernible) I am going to ask a few questions and then jump out to see if anyone else is on the line and if not I am going to try to requeue for a few more after that. But let's, maybe Park, if we can start with the Bay, Walton sector plan.

Can we get a sense of -- an update, I know it's early in the approval process but can you give us any additional color on feedback you may be hearing from various commissioners or representatives of the government that maybe going through the plan. And if there are any concerns and just generally what you are hearing back from the community on the plan's reception so far.

Hey, Buck. Right now we are, as you said, in the beginning of the process.

We actually go to our first public meetings over the next 30 days, both in Bay and Walton County. We have been very proactive going out trying to inform the community, both through open houses and through meetings various staff officials and working on the documents themselves that are in the plan as presented.

And so, we have note encountered any big hurdles or anything that would tell us that this is anything but a process that so far has been moving smoothly, and I think that’s because of the way that we have done it and because of our St. Joe's reputation in the past for doing things right.

And again, this is a public process. So that it will probably be at least another nine to 12 months as we go through it.

As we encounter whatever we do encounter, we will deal with it. But I can't say to you, Buck, it's a go or no go because it is a public process right now.

Okay. Can we maybe just get an update on some near-term cash uses in terms of maybe an update on CapEx?

What needs to be spent left on Pier Park through your end and would you plan to invest in some of your other residential projects through your end?

Hey, Buck, it's Marek. As far as Pier Park, we have about $19 million more to spend to complete the project.

Not all of it will happen through December but a vast majority of it will happen by that time. As far as the other CapEx, our disclosure will show that it's just under $30 million of CapEx planned for the rest of the year.

Okay. That’s helpful.

And one more before I jump out and then jump back in later. Can we talk a little bit about the discussions about the capital allocation plans and to the extent you -- and I know, maybe limited, but I guess one way of thinking about it.

Have you guys thought about what your internal estimate of NAVA is for the asset base and would there be contemplation of a buyback that, at these levels, would that be accretive to that type of calculation?

Okay. We are not prepared to be specific to say anything like that right now, is that the board is working on all options.

We have said that a number of times and so I don’t want to get, go any further than that.

Okay. I know.

I am trying, I am trying.

Keep going. I am sure you will come back through it again.

I know. My investors have asked me to press you guys and make sure you guys -- see if you will answer when you might have answer about excess capital allocation.

But let me drop out and see if anyone else is on the line. So, operator, you can hand it over to someone else now.

Are we still there?

Just a couple of quick questions. On Pier Park North, looks like $600,000 of rental income thus far, kind of in Q2.

Just curious, kind of what the right run rate is going to look like when you start to get that thing fully occupied. What's a good number in rough ballpark?

Yes. It's 330,000 square foot, around that number, for the overall scale of the project.

So if you do the math based on lease rates, you could see that the number at full occupancy is in the scale of $5.5 million for the overall project.

And your take of that? That $5.5 million wouldn’t be all yours, right?

No. We are 66% owners of the project.

All right. It's then, kind of the end date on that is, maybe a year from now, you guys could be at that run rate or sooner?

Yes. As of today, we have 14 stores that are open.

They are scheduled over time. Clearly there is some small pieces, not quite small but some pieces not yet started in construction.

So majority of it is within a year but there would be some beyond that.

Okay. And then just WaterSound Origins.

It seem like that is -- you guys are starting to see a decent amount of pickup in sales there. Maybe you could provide some color on, kind of what you are seeing and also how you think about your ability to ramp up lot sales for WaterSound Origins.

In WaterSound Origins, I think we have had 41 sales year-to-date in that project. If you remember us discussing the St.

Joe Club and Resorts, we are offering incentives as to being members of the club, is part of getting into the Origins piece of it. And we are confident that you will see more than one builder in there very soon and that we will be ramping up significant more than where we are today.

We have had a great take on the St. Joe Club Resorts piece of it to have the memberships and access to the beach club and the golf courses, is part of the incentive to buy those lots in there.

Yes. And then just, I guess the vacation club, great success, the 32% growth in properties under management.

How do you guys think about kind of the potential addressable market there? 32% sounds very good.

I don’t what base that’s off of but how do you think about the runway for growth there?

Well, 30A is the premier location along the whole coast here and encompasses a large number of high-end properties that are on rental programs that are with competitors or even individuals doing vacation rental by owner. So we think that there is a room for considerable growth well over where we are today.

Great. I am going to let Buck come back in.

Thanks, guys.

You are back.

Yes, we are back. Me and Aaron has been trading off.

I guess let me ask another one about cash taxes. You expect to -- I know guys were playing on paying some cash taxes related to the AgReserves sale.

What's the schedule for payment of taxes through your end?

So we have made a $35.4 million payment on June 15. We expect two additional payments that add up to about $35 million.

One in mid-September, one mid-December.

Perfect. That’s helpful.

So that would explain kind of the cash drop from April to June, I suspect. Mainly the taxes was the drop in the recent cash balance.

Exactly.

Got you. Okay.

And kind of following on Aaron's question about that WaterSound Origins, I guess I am just wondering about a broader, kind of home building market update in the area. Absorption paces seem to be under pressure and a lot of parts in the country right now for a lot of homebuilders.

Is North West Florida fairing any better on that front this season and have you been able to raise any prices on home sites in any communities or are you possibly lowering any asking prices for home sites right now?

Two questions. One is the market in general and it really varies by project.

I would say some of the projects that are here in North West Florida have experienced the same sort of, just slight slowdown recently but there seems to be activity now picking back up again. In the higher end, we continue to have way more activity than we have had in the past.

We have actually raised prices on lots, our remaining inventory, because we don’t have that much of it and there is not that much left. We have had, for example, WaterSound West Beach, we have raised prices in lots from 250 to 430 average on our 30 remaining lots there and we are trying to get as much value as we can out of the lots that we have got remaining and that market seems to continue.

We have also, for example, we are adding the same incentives to those lots that we did at Origins, where you can be part of the St. Joe Club as part of your ownership of those lots.

Okay. What about, like a primary community like Breakfast Point?

How is the absorption at Breakfast Point holding up this season?

We have one builder in that community and so they have scheduled takedowns. So from the St.

Joe Company point of view, there has been no change because they are under contract. I think same kind of situation that you mentioned nationally.

There was a little bit of a pause out there and again, we are dealing with lot of small numbers. So we are seeing different activity on the different month but this seemed to be a little bit more recently.

Okay. Any update on Port St.

Joe that you can share with us or plans to accelerate development of Port St. Joe.

No. We are in the same place we were before.

I remember when we talked last we were in the process of evaluating the cost of the dredging piece of it. The state has actually put aside money for the port authority to assist in the dredging, once it takes place.

It passed and was in the budget. Once we get through the actual engineering and the studies that are now to see what it will take to actually to dredge, we will be much further along.

We do have two signed agreements and we have a user in there in Eastern Shipbuilding that’s there. And we have a lot of interest from people who, once we get the dredging done or some kind of a commitment, who want to come back and talk with us about the port.

Okay. One question about couple of strategic pieces here.

I am curious what your thoughts are about, maybe doing something with SouthWood, outside of Tallahassee and/or WindMark Beach at this point. These seem to be kind of the two last big pieces of acreage or real estate that just don’t seem to fit quite in with the rest of the footprint of the company's plans.

What would you think about or what's your thought process around SouthWood or WindMark Beach.

We are working on our strategy for both of those pieces right now. It's that there is no clear direction.

We are looking at all options that are sitting out there. WindMark and SouthWood are both sort of in that bucket of strategy planning.

Okay. I guess you guys are still planning on terminating the pension plan.

When would the cash receipts for the termination start to come through?

We are expecting prior to year-end.

Okay.

It's really in the IRS's hands right now to make a determination that the termination itself meet their requirements.

Okay.

And we have had estimates as early as August and estimates as late as December.

Okay. And the amount of cash to be received, maybe, is it still around that $20 million number?

Yes.

Okay. And lastly, looks like you had recent addition to your board.

I was wondering if you might be able to share a little bit of background of your new board member and kind of the thought process of adding additional voice to the board and what we might be able to expect.

No. (indiscernible) We are very happy and excited to have him on the board.

(indiscernible) provides a lot of operational experience that he had at Safra Bank, in that group. And so we have got a board that’s very experienced and savvy and gives us a lot of good advice and he will be a great part of the strategy process.

Sounds like we answered all the questions. So thank you for your questions and for listening.

Talk to you next earnings call.