(Florida East Coast Industries issued the following news release on November 3.)
ST. AUGUSTINE, Fla. — Florida East Coast Industries, Inc. (NYSE: FLA) (FECI) announced results for the third quarter ended September 30, 2004.
Robert W. Anestis, Chairman, President and Chief Executive Officer of Florida East Coast Industries, stated, “Our businesses continued to benefit from strong economic trends during the third quarter and we anticipate that this will continue through the balance of the year and into 2005. Although the Railway third quarter results were impacted by an unprecedented four hurricanes, I am pleased to note that the Railway quickly resumed operations in plenty of time to service its customers during our peak season and to accommodate increased activity associated with Florida’s reconstruction effort. The Railway results for the first eight months, prior to the hurricanes, were very strong with revenues up 11%. We expect this momentum to continue into the fourth quarter with double-digit percentage increases in Railway segment revenues and operating profit compared to the fourth quarter 2003.”
Mr. Anestis continued, “Flagler sustained negligible damage to its properties and delivered a strong third quarter; with rental and service revenues increasing 9%, and rental properties operating profit before depreciation and amortization increasing 11%. Flagler’s leasing results continue to be strong, with overall occupancy increasing to 94% from 87% a year earlier. In Orlando, Flagler leased an entire 137,000 square foot office building to Starwood Vacation Ownership, before its expected completion later this month. In addition, we announced two additional building starts in anticipation of continued demand for office and industrial space in Jacksonville and South Florida.”
Mr. Anestis added, “During the quarter, we purchased 5.5 million of our shares from the Trust and the Foundation for approximately $190 million, or $34.50 per share, during the quarter in a transaction that benefits all remaining shareholders. We also placed $105 million of non-recourse mortgage debt on Flagler properties to take advantage of near record low interest rates and to reduce the overall cost of capital. With a more optimal capital structure in place and a tailwind of strong results at our back we are optimistic about the months ahead.”
For the third quarter 2004, FECI reported consolidated revenues of $76.8 million, compared to $86.8 million for the third quarter 2003. Revenues for the third quarter 2004 included realty sales of $12.3 million, compared to $25.3 million in the third quarter 2003. Income from continuing operations was $10.4 million, or $0.31 per diluted share, for the third quarter 2004 (which includes $6.4 million of after-tax profit from land sales), compared to a loss of $0.2 million, or $0.01 per diluted share for the third quarter 2003 (which includes $5.6 million of after-tax profit from land sales and $10.1 million of after-tax charge for the estimated cost of ending a long-term ground lease). FECI reported consolidated third quarter 2004 net income of $10.5 million, or $0.31 per diluted share, compared to $1.0 million, or $0.03 per diluted share, for the prior year quarter. Included in net income is income (loss) from discontinued operations related to the 2003 sale of an office building and the 50% interests previously held in partnerships with Duke Realty, as well as the 2004 sale of an office building and an industrial building.
The Company’s current outlook for the 2004 full year Railway segment revenue and operating profit growth is mid-to-upper single digit percentage improvement over 2003. Capital expenditures for the Railway, before the purchase of any strategic land parcels to be used by future Railway customers, are expected to range between $30 and $33 million. The Company’s outlook for Flagler’s 2004 rental and services’ revenues are expected to range between $68 and $70 million, an increase of 7% to 10% over 2003. Flagler’s rental properties’ operating profit before depreciation and amortization expense is expected to range between $43 and $45 million in 2004, an increase of 7% to 12% over 2003. Operating profit from operating properties’ rents is expected to range between $18 and $20 million. Capital investment at Flagler for 2004 is expected to be between $75 and $85 million.
Railway Third Quarter Results
— During the quarter the Florida coast was hit by four hurricanes, our Company and employees were impacted by three, with two causing major disruptions to the Railway’s operations. The Company estimates the hurricanes reduced FECR’s third quarter revenues by approximately $4.0 to $4.5 million. Also, FECR estimates it incurred approximately $2.0 million of incremental operating expenses related to clean-up costs, property damage, grade crossing operations and support and additional train crew costs as a result of trains operating at reduced speeds. The total net impact to the Railway’s third quarter operating profit because of the hurricanes was estimated to be approximately $3.5 to $4.0 million.
— Florida East Coast Railway (Railway) segment’s revenues in the third quarter 2004 increased 3.4% to $46.3 million from $44.7 million in the prior year period. Included in the third quarter 2004 revenues were $1.1 million of fuel surcharges, compared to $0.5 million in 2003.
— Total carload revenues were lower by 5.8% due to lost revenue during days of suspended or limited train service as a result of the hurricanes. Aggregate revenues were down 8.1% as a result of the hurricanes. Despite the impact from the hurricanes, intermodal revenues (which include drayage) increased 15.3% compared to the prior year period, reflecting new customers, increased revenue from the international business segment, continued success with the “Hurricane Train” and improved pricing, which were partially offset by lower revenues from a connecting carrier.
— Railway segment’s operating profit decreased to $7.8 million in the third quarter 2004 versus $10.8 million in the third quarter of 2003 due to the impact from the hurricanes and a July 2004 derailment that cost $0.8 million. As a result, the Railway’s operating ratio was 83.1% compared to 75.9% in the prior year quarter.
— The Railway manages changes in fuel prices by purchasing a percentage of the estimated fuel consumption (up to 13 months in advance) and by passing on fuel price increases to its customers through a surcharge. During the third quarter customer fuel surcharges together with the forward purchases substantially offset the increase in fuel expense compared to the third quarter 2003.
Realty Third Quarter Results
Rental Portfolio Results
— Flagler’s rental and services’ revenues increased 9.0% to $17.4 million for the third quarter 2004 from $15.9 million in the third quarter of 2003. The increased revenues resulted primarily from “same store” properties and a property in the lease-up stage.
— Rental properties’ operating profit was $5.9 million for the third quarter 2004 versus $5.0 million in the prior year period. Rental properties’ operating profit before depreciation and amortization expense for the quarter increased 10.7% to $11.3 million compared to $10.2 million in the third quarter 2003. Rental properties’ operating profit before depreciation and amortization expense benefited primarily from improvements in “same store” occupancy and a property in the lease-up stage.
— As previously announced, Flagler leased an entire 137,000 square foot, four-story, Class-A office building, which is currently under development, at SouthPark Center in Orlando, Florida to Starwood Vacation Ownership.
— Flagler’s overall occupancy rate continues to improve, increasing to 94% compared to 87% at the end of the third quarter 2003 and 91% at the end of the second quarter 2004. Development and Sales Activity
— During the third quarter, Flagler commenced development and construction of two buildings. The first is a 113,000 square foot, four-story, Class-A office building to be located within the eight building award-winning Deerwood Business Park in Jacksonville. The second is a 200,000 square foot, single-story warehouse building at Flagler Station in South Florida. Both business parks are expected to be 95% occupied at the end of the year.
— At quarter end, Flagler had ten projects, totaling 1,421,000 square feet, in various stages of development (113,200 square feet in the lease-up stage; 803,500 square feet in the construction stage, which includes a 239,000 square foot build-to-suit; and 504,300 square feet in pre-development).
— During the third quarter, Flagler sold a 147,200 square foot unoccupied warehouse building located at the Gran Park at the Avenues in Jacksonville, Florida for $4.1 million and sold 32.3 acres located in Dade County for $9.1 million.
— Property under sale contracts at September 30, 2004 totaled $86.7 million and other property was listed for sale at asking prices totaling $24.1 million. The Company expects full year 2004 realty sales of $115 to $120 million, which includes the $80 million sale of a 465-acre land parcel that is expected to close in the fourth quarter of 2004.
— The Company has consistently sold core and non-core realty when near- term valuations justify a sale which yields a very attractive price. The Company anticipates utilizing a substantial part of the proceeds from near- term realty sales to acquire land and buildings to which it can add future value for the shareholders through its core management and development strength. The Company will seek to accomplish any such acquisition transactions in qualified like-kind exchanges for tax purposes.
Capitalization
— The Company’s cash balance on September 30, 2004 was $60.8 million (which includes $17.6 million of cash and cash equivalents held as deposits or to be used in 1031 exchanges). Debt on September 30, 2004 was $344.0 million, composed of non-recourse real estate mortgages.
— As previously announced, in the third quarter, the Company completed the purchase of 5.5 million shares of FLA stock from the Trust and the Foundation for $34.50 per share or a total of approximately $190 million. As of September 30, 2004, there were 31,768,012 shares issued and outstanding.
— As previously announced, on August 10, 2004, Flagler Development Company closed on $105 million of non-recourse mortgage financing. The notes are secured on a non-recourse basis by certain of Flagler’s developed commercial and industrial rental properties. The financing consists of a $60 million, seven year note bearing interest at a fixed rate of 5.27% and a $45 million, seven year note bearing interest at an adjustable rate based on three-month LIBOR plus 1.00%. The floating rate note allows Flagler the flexibility to opportunistically sell buildings securing the notes with minimal prepayment costs after a six-month period.
About Florida East Coast Industries, Inc.
Florida East Coast Industries, Inc., headquartered in St. Augustine, FL, conducts operations through two wholly owned subsidiaries, Flagler Development Company and Florida East Coast Railway, L.L.C. (FECR). Flagler owns, develops, leases and manages 6.5 million square feet of commercial and industrial space, as well as an additional 803,500 square feet under construction, and owns approximately 749 acres of entitled land and approximately 2,470 acres of additional Florida properties. FECR is a regional freight railroad that operates 351 miles of mainline track from Jacksonville to Miami and provides intermodal drayage services at terminals located in Atlanta, Jacksonville and Miami. For more information, visit the Company’s website at http://www.feci.com .