U.S. Markets closed

Edited Transcript of PICO earnings conference call or presentation 2-Mar-17 4:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 PICO Holdings Inc Earnings Call

LA JOLLA Oct 6, 2017 (Thomson StreetEvents) -- Edited Transcript of PICO Holdings Inc earnings conference call or presentation Thursday, March 2, 2017 at 4:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* John Perri

PICO Holdings Inc - CFO

* Max Webb

PICO Holdings, Inc. - President & CEO

* Dan Silvers

PICO Holdings, Inc. - Lead Independent Director

================================================================================

Conference Call Participants

================================================================================

* John Cukierwar

Robotti & Company - Analyst

* Andrew Shapiro

Lawndale Capital Managment - Analyst

* John Deysher

Pinnacle Value Fund - Analyst

* Michael Melby

Gate City Capital Management - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the PICO Holdings fourth-quarter 2016 earnings conference call.

(Operator Instructions)

Please note that this call is being recorded. I would now like to turn the conference over to John Perri, PICO's Chief Financial Officer. Please go ahead.

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [2]

--------------------------------------------------------------------------------

Thank you. And welcome to all of you who have joined us to discuss PICO Holdings' financial results for the year ended December 31, 2016. Our earnings release is available on our investor website at investors.picoholdings.com under press releases. I'm here today with Max Webb, our President and CEO. And additionally, Dan Silvers, our Lead Independent Director has dialed in separately. Max and I will provide some brief prepared remarks. And then all three of us will be available to answer your questions.

Before we begin, I would like to remind you that comments on today's call will include forward-looking statements. Forward-looking statements can be identified by the use of words such as estimate, anticipate, expect, believe, intend, may, will, should, seek, approximate, or plan, or the negative of these words and phrases, or similar words and phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

These forward-looking statements speak only as of the date of this conference call, and should not be relied upon as predictions of future events. PICO Holdings expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made today to reflect any change in PICO Holdings' expectations with regard thereto, or any other changes in events, conditions, or circumstances on which any such statement is based, except as required by law. Please refer to our SEC filings and our investor relations website for additional information. With that, I would like to turn the call over to Max Webb.

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [3]

--------------------------------------------------------------------------------

Thank you, John. I will begin today's remarks with a review of the progress the Company has made over the past year, and a brief update on our most significant assets. After that, John will review our current financial position.

The most obvious signs of the Company's progress over the last year or so are the significant sales of water, real estate, and oil and gas assets, the revised executive compensation plan that is now in place, and the Board declassification, whereby the five Director nominees at this year's annual meeting in May will each be elected to serve one-year terms. We believe that the Company is executing on its stated business plan at the same time that the Board ensures best in class corporate governance.

Our most important and significant assets are our wholly owned subsidiary, Vidler Water Company and our 56.9% subsidiary, UCP Inc. Vidler's water resource assets are unique assets that are, for the most part, fully developed and which we expect to provide an essential resource for future economic growth in Arizona, northern Nevada, and to a lesser extent, southern Nevada and parts of New Mexico.

We previously announced the closing of the sales of 100,000 acre-feet of long-term storage credits for $25 million to two Arizona State agencies. We remain acutely aware that these assets are strategically important, due to the structural deficit in the Colorado River. Additionally, our remaining long-term storage credits are a key component for some of Arizona's future water obligations. We continue to have discussions with state water agencies and water users with respect to potential dispositions of these assets.

Substantial economic growth continues in northern Nevada, with an employment growth forecast of approximately 52,000 new jobs in the Reno area from December 2014 to December 2019, including an estimated 27,000 new jobs which have been created through December 2016. However, as residential development activity increases to accommodate the future population growth from this projected increase in economic activity, we are seeing signs of regulatory bottlenecks by local government in the Reno area.

Certain development projects have been required to be refiled, and this has caused delays in the receipt of final map approvals. Our most recent and formal survey of developers in the North Valleys, which we have conducted during the first two months of the first quarter of 2017, suggests that our water credits in that region will not start to be taken down until late 2017 or early 2018, which reflects these approval delays.

That said, we have not seen the same regulatory constraints in Lyon County, Nevada, where we expect the completion of the extension of the USA Parkway from the Tahoe/Reno industrial center to Silver Springs and Lyon County in late 2017. And this means that the USA Parkway will connect Interstate 80 to US Route 50. We believe this project will be a catalyst for increased residential and commercial development, and as a result, demand for water rights in Lyon County.

Moving on to UCP, the Company's full-year results were released earlier this week, which John will cover in his remarks. Overall, we are pleased to see that UCP has significantly improved its operating performance in 2016 as compared to 2015, and has improved its return on equity and assets as they manage their existing land bank and their land acquisitions.

As it relates to UCP, we have taken the step of nominating a highly qualified individual with significant real estate, and merger and acquisition, and capital markets experience to the UCP Board at this year's annual meeting. Additionally, we have made proposals for UCP to implement the same types of good corporate governance policies that we have at PICO. We continue to monitor our investment in UCP closely, as we seek to pursue our strategy of monetizing our assets.

John will detail our current cash position in his remarks, but based on asset monetizations to date, and our conservative estimate of medium-term working capital needs, we estimate we have approximately $20 million available to return to shareholders in the near to intermediate term. The Board is monitoring the capital markets very closely to determine the most efficient manner to execute this capital return.

That wraps up my brief remarks. And now I will turn the call over to John Perri, who will cover our financial results for 2016.

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [4]

--------------------------------------------------------------------------------

Thank you, Max. And thanks to everyone for joining us today. Starting with our cash position, as of December 31, 2016, we had unrestricted cash and securities of $18.6 million. As Max noted in his remarks, we closed on several transactions in 2016 and early in 2017 that generated a significant amount of cash. In addition, we also collected the nearly $6 million in cash held in the escrow account related to the sale of our Canola Oil operations. In the foreseeable future, we also expect to receive cash payments from UCP for minimum tax distributions, as it continues to produce taxable income. Such income is currently sheltered by our net operating losses.

In summary, at December 31, 2016, we projected that our current burn rate for all cash outlays for overhead, existing water project costs, and costs related to the wind down of our oil and gas operations, excluding UCP's operations, and also excluding the severance payable to our former CEO, was approximately $9.9 million per year which is net of a modest amount of recurring revenue. We also estimated that our total expected cash inflows from significant sales and other receipts during 2017 to be approximately $39.5 million, which includes the $25 million for the sale of our water credits that was consummated in early 2017.

We believe this provides us the necessary working capital for at least the next 12 months, including the severance payments to our former CEO. As such, as Max noted in his remarks, we have the ability to utilize a significant portion of proceeds from recent asset sales to repurchase shares and/or return capital to shareholders through other means. I would like to refer you to the liquidity and capital resource section of our 2016 Form 10-K for additional details related to our financial condition.

In the fourth quarter of 2016, our revenues were approximately $113.1 million, an increase of $5 million from the same period last year, which was due primarily to the sale of the majority of our oil and gas assets. Total costs and expenses increased approximately $82.2 million to $380.6 million due primarily to an increase in cost of real estate sold and the $11 million in severance expense related to the termination of our former CEO.

There were no impairment losses on real estate recorded during the fourth quarter of 2016. However, we did write off our $2.2 million investment in Synthonics, and also recorded a $2 million loss upon abandonment of operations in a consolidated subsidiary. UCP Inc. reduced the valuation allowance on its net deferred tax assets during the fourth quarter of 2016, and as a result, recognized a $5.5 million tax benefit, which is wholly attributable to the non-controlling interests. However, we still maintain a full valuation allowance on our other net deferred tax assets.

The resulting loss per share from our continuing operations was $0.38 for the fourth quarter ended December 31, 2016, compared to $0.05 for the same period last year. Our shareholders' equity declined $6.9 million or $0.30 per share to $328 million or $14.22 per share. This decline was primarily due to our reported net loss.

Our water resource and water storage operations did not record any significant revenues during the fourth quarter, but did reduce total expenses. Our real estate segment reported net income before taxes of $3.4 million in the fourth quarter of 2016 compared to income of $8.1 million in the previous period. Please see UCP's recent earnings release, and its 2016 Form 10-K, for additional results and specific details.

Our corporate segment reported a loss before taxes of $10.3 million for the quarter ended December 31, 2016, compared to $2.4 million in the prior period. We closed on the sale of our oil and gas operations during the fourth quarter of 2016 for gross proceeds of $9.6 million, which resulted in recording a gain of $8.7 million, considering we had written down the value of these assets in a previous period.

General and administrative expenses increased during the current quarter, primarily due to the severance expense recorded in conjunction with terminating our former CEO. Such severance, along with the balance in his deferred compensation accounts, is expected to be paid in April of 2017. With that, we will open the call to your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

John Cukierwar, Robotti & Co.

--------------------------------------------------------------------------------

John Cukierwar, Robotti & Company - Analyst [2]

--------------------------------------------------------------------------------

Hello Max, how are you?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [3]

--------------------------------------------------------------------------------

Good morning, John. Very well thank you.

--------------------------------------------------------------------------------

John Cukierwar, Robotti & Company - Analyst [4]

--------------------------------------------------------------------------------

That is great. I have a few questions Max. My first is regarding the sale of the 100,000 Arizona water rights in early February. Are you able to share at what value you are caring those assets on the books? And more generally, did the sale give you a more updated picture of what some of your water assets in Arizona could be worth?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [5]

--------------------------------------------------------------------------------

With respect to the first part of your question, yes. I believe we disclosed that we expect record a gain of approximately $12.5 million and John Perri is nodding so telling me that is correct, so that would imply that caring value is approximately half of what our ultimate sale price was. That was a price at the time of the transaction, as we have stated before by reducing the amount of credits that are available for resolving some of the Arizona water issues, we believe that makes our remaining credits more valuable.

--------------------------------------------------------------------------------

John Cukierwar, Robotti & Company - Analyst [6]

--------------------------------------------------------------------------------

Okay. That makes sense. Thank you.

The next question I have is regarding you guys talk about maximizing long-term share holder value through return of capital and your $20 million in the near to intermediate future. I know in November 2015 the Board authorized up to $50 million of share repurchases. So, if you do consider returning capital this way, then do you have any thoughts that you can share regarding the timing of any buybacks?

The way I see it, is PICO continues to liquidate assets significantly above those values. The market value of PICO might also rise along with the Company's book value. And it so if you believe that, X years from now, after a substantial asset liquidation, that the Company could be worth X dollars per share. But in order to maximize the long-term shareholder value, it makes sense to begin buying back the shares. [Of which it is quite possible] which would be today. Right?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [7]

--------------------------------------------------------------------------------

I believe that is certainly an option that the Board would look at very carefully. And probably wouldn't disagree with that analysis.

--------------------------------------------------------------------------------

John Cukierwar, Robotti & Company - Analyst [8]

--------------------------------------------------------------------------------

Okay. I know you have mentioned share buybacks before versus dividends. But you guys don't still have a clear picture on which route you might go, right?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [9]

--------------------------------------------------------------------------------

I think we would consider all options make the most rational decisions that maximize shareholder value under the circumstances that exist at the time.

--------------------------------------------------------------------------------

John Cukierwar, Robotti & Company - Analyst [10]

--------------------------------------------------------------------------------

Okay. I appreciate that, thanks. And just a last question. Do you have any updates regarding your investments in Synthonics and [Niger]. Is there a clear timeline for these exits?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [11]

--------------------------------------------------------------------------------

They are both highly liquid assets. As John mentioned in his remarks, we have written off our carrying value, which was our investment cost in Synthonics. We would continue to look for an exit as circumstances allowed. And similarly, with Mindjet, which is a pretty small asset that we are not funding and is held at -- John will have to confirm how we account for that but I think it is a cost right now.

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [12]

--------------------------------------------------------------------------------

Correct. [It is a cost of $2.2 million].

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [13]

--------------------------------------------------------------------------------

And again as and when circumstances allow us to provide an exit, we would look to do so.

--------------------------------------------------------------------------------

John Cukierwar, Robotti & Company - Analyst [14]

--------------------------------------------------------------------------------

Okay. I appreciate that.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Management.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [16]

--------------------------------------------------------------------------------

Thank you. A few questions. You sold, I think it was around half of the credits that we had in Arizona. Is that right?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [17]

--------------------------------------------------------------------------------

A little less than that Andy. Total credits that we have. We did have 157,000 in the Phoenix active management area. So we sold 100,000 of those. And we still have approximately 250,000 credits in the Harquahala Basin.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [18]

--------------------------------------------------------------------------------

Okay. So with respect to, I think it is the basins where you have the recharge facility. I don't know if it is one rainy season, or it is the flood of all floods and the need for Noah's Ark, and the elimination of anyone to worry about the lower basin drought contingency proposal et cetera. What are the circumstances for which that recharge facility and PICO's water credits would actually be -- would rise and we either get water, accumulate water, we have to buy the water? How does that occur that those balances would actually rise?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [19]

--------------------------------------------------------------------------------

I am not 100% sure I quite understand the question, Andy. But I think I know what you are asking. Obviously, it has been a very good year for water in the west, which is as people who live in the west, is great. It is certainly alleviating drought conditions from California, Nevada, and the snow pack will certainly help the Colorado River.

The reality is, there is still, certainly with respect to the Colorado River, a long-term structural deficit. That we see declining water levels in Lake Mead, not just through drought. The decline is occurring because the lower basin states are collectively using more water than is available. Drought or no drought. That is about 1.2 million acre-feet.

We do not intend at this time, and we certainly could revisit, but it is not our intention to repurchase any more water off the Colorado River. We have ceased recharge operations. We have a bucket that we believe that we are able to purchase the water in that quote unquote bucket was purchased at good prices that is now available to be sold to help alleviate and help resolve some of the structural deficit issues.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [20]

--------------------------------------------------------------------------------

Okay. So, the only way that we increased the water we actually have to buy it. It is not like we are collecting it in some bucket?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [21]

--------------------------------------------------------------------------------

No. You physically have to buy it. Recharge it. Get it certificated and then it becomes a net recharge credit.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [22]

--------------------------------------------------------------------------------

So we are not doing that. So with this rain and the reduction of some severe drought circumstances, does that mean the timing for the higher level monetization as you mentioned in your pre prepared comments. Does that mean that the timing of the monetization of some of the remaining credits have higher values gets deferred a bit because of all of the extra rains. Because yes as residents of the West, we like the fact that the drought has gone down. But as owners of water assets in the West we probably benefit more if the drought were to continue.

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [23]

--------------------------------------------------------------------------------

As I mentioned, I think drought or no drought there are still issues with water levels and water resources for the lower Colorado Ribbon Basin states. Because we are using more water than is available. An example, I believe, through a period of 12, 13 years from 2000, there was at least [8] and probably nearly 250,000 acre-feet released from Lake Powell. And I think in 2011 there was probably about 12.5 million acre-feet was released, because again there was an above average winter snow pack. But the water level in Lake Mead still fell, I think it was close to 100 feet, because of the structural deficit. So as I said drought or no drought there are still water issues.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [24]

--------------------------------------------------------------------------------

So let me just finalize on this topic then I will back out in the queue. I have other questions on other geographies. What is the latest Lake Mead surface elevation? And the key elevation thresholds that we have been all monitoring? And you've discussed either the last quarter's call or the call before.

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [25]

--------------------------------------------------------------------------------

I believe the key element that you're referring to elevation level. And I may be proved wrong but I believe it is 1075 feet. I don't know what the level is today.

I did see a recent report that Lake Powell would release some water to Lake Mead. So think it is better than it was. It was getting very dangerously close to that level, but I couldn't tell you exactly what that level is on this call. I'm very happy. I am sure Dorothy Timian- Palmer at Vidler knows that level at the top of her head and if you want to call in a separately, Andy, I'm very happy to provide that information.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [26]

--------------------------------------------------------------------------------

Excellent. I will back out of the queue and come back to me. I have more questions.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

Kelly Cardwell, Central Square Management.

--------------------------------------------------------------------------------

John Cukierwar, Robotti & Company - Analyst [28]

--------------------------------------------------------------------------------

Hello guys it is actually John at Robotti [REF] my share repurchase questions. I think I am all set.

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [29]

--------------------------------------------------------------------------------

Thank you Kelly.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

(Operator Instructions)

John Deysher, Pinnacle.

--------------------------------------------------------------------------------

John Deysher, Pinnacle Value Fund - Analyst [31]

--------------------------------------------------------------------------------

Hello. Just a quick question on the accrued severance expense for the former CEO of $10.4 million I guess to be paid in April of this year. Is that the full amount due him? Is there going to be any incremental amounts beyond the $10.4 million?

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [32]

--------------------------------------------------------------------------------

Hello, this is John. Yes the $10.4 million a certainly the bulk of it. The incremental, I would say is the net settlement of his restricted stock unit that vested. But in terms of cash, the $10.4 million is the bulk. Frankly, all of it that needs to be paid April.

--------------------------------------------------------------------------------

John Deysher, Pinnacle Value Fund - Analyst [33]

--------------------------------------------------------------------------------

So that is going to be the total payment. What is the value of the restricted stock and how does that run through the P&L?

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [34]

--------------------------------------------------------------------------------

That is expense. I believe it was $578,000 accrued up that [immediate] vested upon his termination. And like I said that will be net settled into shares in April.

--------------------------------------------------------------------------------

John Deysher, Pinnacle Value Fund - Analyst [35]

--------------------------------------------------------------------------------

Okay. So nothing beyond the $10.4 million.

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [36]

--------------------------------------------------------------------------------

That is correct.

--------------------------------------------------------------------------------

John Deysher, Pinnacle Value Fund - Analyst [37]

--------------------------------------------------------------------------------

Okay. Very good. Thank you.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Management.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [39]

--------------------------------------------------------------------------------

Thanks. A few follow-ups. A direct follow-up after this gentleman's question. So, we previously stated that the Board did not feel that Mr. Hart's termination, that the threshold for cause at that time. And thus, what has been accrued and intended to be paid is a termination without cause higher payment. Has any further actions, any further investigation? Is that now a done issue and indeed it will be treated as a termination without cause?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [40]

--------------------------------------------------------------------------------

As we have Dan on the line, I would pass that to Dan.

--------------------------------------------------------------------------------

Dan Silvers, PICO Holdings, Inc. - Lead Independent Director [41]

--------------------------------------------------------------------------------

Thanks, Max. Hello Andy how are you?

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [42]

--------------------------------------------------------------------------------

Good.

--------------------------------------------------------------------------------

Dan Silvers, PICO Holdings, Inc. - Lead Independent Director [43]

--------------------------------------------------------------------------------

What I would say is, that if there were any news of a material nature to report, we would obviously report that through a public filing. And I would not take the lack of news as confirmation either one way or the other as to anything. And it is probably best that we leave it at that.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [44]

--------------------------------------------------------------------------------

Okay. But from a practical term standpoint, if the payment is due in a few months, would that put pretty much a timeline on the alternative?

--------------------------------------------------------------------------------

Dan Silvers, PICO Holdings, Inc. - Lead Independent Director [45]

--------------------------------------------------------------------------------

I think that this is probably a topic that is best not discussed in this forum.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [46]

--------------------------------------------------------------------------------

With respect to the elimination of the restricted stock units. Are the shares considered already issued and outstanding shares, and when they are purchased it would be in effect similar to a buyback? Where the outstanding share would drop? Or these are not yet issued shares, and is it a distribution of shares? Or will it be a monetary payment and then the shares will never be issued and added to outstanding share count?

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [47]

--------------------------------------------------------------------------------

Hello Andy. This is John Perri. The shares and I should as of today. They will be issued in March, but they will be net settled, as I mentioned. So in essence we pay the tax in lieu of issuing shares. So they will be issued the net amount at that date. And they will be outstanding at that point forward.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [48]

--------------------------------------------------------------------------------

The net amount. And approximately how many shares are estimated to be created net of what is tendered to pay the taxes?

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [49]

--------------------------------------------------------------------------------

I think it is around 5000 or 6000 shares.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [50]

--------------------------------------------------------------------------------

Okay it's not a big number. Alright.

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [51]

--------------------------------------------------------------------------------

It is basically the 578,000 divided by $14.50 or $15. Whatever it was at the date of his termination. I do not have a data right in front of me, but that is roughly the calculation. And maybe it was even lower. Thank you, Max. And basically a 50% tax withholding rate and so the net is the difference.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [52]

--------------------------------------------------------------------------------

I think you gave a little bit of detail on the status update on the development and value enhancement of your other Northern Nevada water rights. Not the ones in the North Valley Fish Springs area. But could you give a little more color in the status on the water rights that are I guess you would describe to be closer to the Las Vegas area?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [53]

--------------------------------------------------------------------------------

Yes. Those are Lincoln County water rights where we have a teaming agreement with Lincoln County. Currently we have, I think it is 2900 free and clear water rights with another 4000 odd acre-feet of water rights subject to pumping and monitoring. The 2900 would lend itself very well to potential energy project that is occurring or could occur in that area, or longer term, to some of the development that is occurring in Lincoln County or Mesquite. It remains to be seen.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [54]

--------------------------------------------------------------------------------

Isn't there an application for a whole lot more water rights that is pending?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [55]

--------------------------------------------------------------------------------

We have lined up applications, but we have not taken any action at this point until we see demand increasing to turn those applications into actual water rights.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [56]

--------------------------------------------------------------------------------

Okay. And I don't know if this is for you or for Dan, but can you give the expected date for the annual meeting? I think I heard if it was going to be potentially up in Reno. I don't know if it will be in North Valley or where?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [57]

--------------------------------------------------------------------------------

I can tell you it is May 4 in Reno, at the Peppermill Hotel. The details will be forthcoming in our proxy which should be filed at the pre-proxy. I don't know in 2 to 3 weeks time, something of that nature. John may have a more accurate timetable for the filing of that proxy.

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [58]

--------------------------------------------------------------------------------

We expect to file the proxy on March 10.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [59]

--------------------------------------------------------------------------------

And that is a preliminary proxy? Because this will contain new reincorporation proposals and other items?

--------------------------------------------------------------------------------

John Perri, PICO Holdings Inc - CFO [60]

--------------------------------------------------------------------------------

That is correct.

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [61]

--------------------------------------------------------------------------------

I think it is likely that it will, Andy.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [62]

--------------------------------------------------------------------------------

Good.

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [63]

--------------------------------------------------------------------------------

By the way just to answer your question regarding the level at Lake Mead right now, Dorothy did know that number and she has let me know it is 1089 feet.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [64]

--------------------------------------------------------------------------------

And 1075 is, where certain, structural contractual triggers and other things occur with the states right?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [65]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [66]

--------------------------------------------------------------------------------

Excellent. And then is there any status changes to discuss on the development and value enhancement of your water rights and credits in New Mexico, Colorado, or any other state?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [67]

--------------------------------------------------------------------------------

With respect to the water rights in Colorado, those are fully appropriated water rights that can be sold for certain uses and we continue to do so or lease those out. The ones in New Mexico that we have, there are a very saw quantities that we can sell and then, we are in the process of trying to appropriate a new source of water with the State Engineer of New Mexico.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [68]

--------------------------------------------------------------------------------

So in general, Vidler makes these attempts of doing various things and they are pending. I don't think your new 10-K has yet been filed, so I am only going off of the last 10-K, which had a lot of detail or updates on things. Are there ongoing efforts to add to, without having to put out a lot of money, but to add to our water rights where we have had is applications? Or is the focus solely on disposition?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [69]

--------------------------------------------------------------------------------

The focus is very much on monetizations, Andy. We are working on the New Mexico water rights that I just talked about where we attempting to appropriate new water rights and we are in an appeal right now the State Engineer of New Mexico. But outside, that as I mentioned in my remarks our assets are pretty much fully developed, there may be some ongoing project costs with respect to say, the credits where we have to pay property taxes, for example. Or at Fish Springs Ranch where there are some ranch operations. But that is it.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [70]

--------------------------------------------------------------------------------

And then to finish off. Back on Lincoln County, where we do have some water rights that would go well with energy projects. PICO had some interests either in land or in an energy project that was a dormant proposal. Has there been any movement of that proposal and on that perspective energy project?

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [71]

--------------------------------------------------------------------------------

To date, no. But the energy landscape in southern Nevada or Nevada is potentially changing with some of the legislation that has been suggested to remove the, quote unquote, monopoly of Nevada energy and so it is possible that certain legislation changes may result in renewed catalyst for that project.

--------------------------------------------------------------------------------

Andrew Shapiro, Lawndale Capital Managment - Analyst [72]

--------------------------------------------------------------------------------

Okay. Excellent. Thank you.

--------------------------------------------------------------------------------

Operator [73]

--------------------------------------------------------------------------------

Michael Melby, Gate City Capital Management.

--------------------------------------------------------------------------------

Michael Melby, Gate City Capital Management - Analyst [74]

--------------------------------------------------------------------------------

Thank you. My questions were just answered.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Max Webb for any closing remarks.

--------------------------------------------------------------------------------

Max Webb, PICO Holdings, Inc. - President & CEO [76]

--------------------------------------------------------------------------------

Great. Thank you. Thank you everybody for listening to the call and those questions. We appreciate it and we look forward to talking with you and maybe seeing some of you at our annual meeting in May. Thank you very much.

--------------------------------------------------------------------------------

Operator [77]

--------------------------------------------------------------------------------

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.