Net Loss on Reports, but Real Estate Companies' Stocks Rise

Article excerpt

Byline: MARK BASCH

Both of Jacksonville's publicly traded real estate developers reported net losses for the second quarter last week, which shouldn't come as much of a surprise in the current economy. But you might have been surprised to see the stocks of both companies rise after their quarterly reports.

The St. Joe Co., which mainly develops residential communities, rose as much as $4.43 over three days to a high of $33.75 Thursday, its highest level since October. Regency Centers Corp., which develops mainly grocery-anchored shopping centers, rose $2.22 Thursday morning to $37.25 after its late Wednesday report, but the stock gave back those gains later Thursday and finished lower on the day.

The rise in both stocks immediately after reporting losses reflects the long-term confidence investors have in both companies, despite the short-term pain from the recession.

Instead of focusing on the lack of home buyers right now, St. Joe has been focused on the potential of its large land holdings surrounding a new airport in Panama City, Fla., that is scheduled to open next year.

"With plenty of cash, a reduced cost structure and the completion of the new Panama City International Airport expected in May 2010, Joe is positioned to take advantage of any upturn in the Florida real estate market along with opportunities associated with future economic growth in its Northwest Florida base," where most of St. Joe's land holdings are located, JMP Securities analyst James Wilson said in a research note last week.

But all three analysts following St. Joe have a "hold" rating on the stock, according to Thomson Financial.

"We do not expect such a turnaround to be imminent, however, and therefore cannot see much near-immediate-term appreciation coming in the stock and think a pullback is likely," Wilson said.

Analysts also don't expect much action in Regency's stock in the coming months. According to Thomson, 12 of 16 analysts rate it as "hold," right now, with two rating it a "buy" and the other two at "underperform."

While analysts had predicted a net loss for St. Joe, they were expecting a profit from Regency, according to Thomson's data. Also, Regency's funds from operations of 24 cents a share were eight cents lower than the average forecast of analysts surveyed by Thomson.

Funds from operations, which are basically earnings excluding depreciation and amortization expense, are considered a significant financial measure for real estate investment trusts like Regency.

William Acheson, analyst at The Benchmark Co., said in a research note that Regency underestimated the impact of the recession on the tenants in its shopping centers.

"Management was upfront and fairly humble [in its conference call] reviewing its failure to anticipate the sea change sweeping retail tenants, especially small local merchants," Acheson wrote. …