Q4 2015 Results Earnings Conference Call
January 11, 2016, 04:30 PM ET
John Mills - IR, ICR
Harold Edwards - President and Chief Executive Officer
Joe Rumley - Chief Financial Officer
Eric Larson - Buckingham Research Group
Brent Rystrom - Feltl
Chris Krueger - Lake Street Capital Markets
Please stand by, we’re about to begin. Good day and welcome to the Limoneira Fourth Quarter Fiscal Year 2015 Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to John Mills of ICR. Please go ahead.
Good afternoon everyone and welcome to Limoneira company’s fourth quarter and full year fiscal year 2015 earnings call. On the call today are Harold Edwards, President and Chief Executive Officer, and Joe Rumley, Chief Financial Officer
By now everyone should have access to the fourth quarter fiscal year 2015 earnings release which went out today at approximately 4:00 p.m. Eastern Time. If you have not had a chance to review the release, it's available in the Investor Relations portion of the Company's website at limoneira.com. This call is being webcast and a replay will be available on Limoneira's website as well.
Before we begin, we'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the Company's control, that could cause its future results, performance, or achievements that differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.
Important factors that could cause or contribute to such differences include risks details in the Company's 10-Q and 10-K filed with the SEC and those mentioned in the earnings release. Except as required by law, we undertake no obligation to update any forward-looking or other statements herein whether as a result of new information, future events or otherwise.
Please note that during today’s call we will be discussing non-GAAP financial measures including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Limoneira’s ongoing results of operation particularly when comparing underlying results from period to period.
We have included reconciliation of these non-GAAP measures for today’s release and have provided as much details as possible on any [Indiscernible] that are added back. Also in the company’s earnings release and in today’s prepared remarks we include EBITDA which is a non-GAAP financial measure. A reconciliation of EBITDA to the most direct comparable GAAP financial measures is included in the Company's press release which has been posted on our website as well.
And with that, it's my pleasure to turn the call over to the Company's President and CEO, Mr. Harold Edwards. Go ahead, Harold.
Thanks, John, good afternoon everyone and thank you for joining us.
On today's call I'll begin with a brief overview of financial highlights for 2015 and provide an update on our progress across all of our business areas. Joe will review the financial results for the fourth quarter and fiscal year in more detail and I'll then discuss our 2016 outlook and open the call for your questions.
For fiscal year 2015, we reported revenue of approximately $100 million. This was a slight decline from last year primarily due to a reduction in orange sales as fiscal year 2014 revenue benefited from higher than usual orange average price per carton.
We increased our EBITDA in fiscal year 2015 by 10% to $15.4 million. EBITDA was positively impacted by our ability to strategically monetize certain investments and non-core assets. This includes a gain of approximately $5 million on the sale of Calavo Growers stock as well a gain of approximately $1 million associated with the sale of the Wilson Ranch both of which occurred in the fourth quarter.
Fiscal year 2015 was an exciting year for Limoneira. We made significant investments and progress across all areas of our business, agribusiness, real estate development and rental. First, regarding our agribusiness. We recently completed the acquisition of approximately 900 acres of lemon, orange and speciality citrus orchards in the San Joaquin Valley which is one of the more important agricultural regions in the country. For the past few years, we had, we’ve been leasing these properties from the Sheldon family.
With the acquisition of the land we anticipate realizing incremental operating results and cash flows resulting from the elimination of lease expense beginning in fiscal year 2016. Earlier this year we amended our agricultural lease agreement with Cadiz Incorporated to include additional 200 acres. We acquired a total of 200 acres of lemon trees and associated irrigation lines from Cadiz and one of its leasing tenants for approximately $1.2 million.
Under the amended lease agreement, Limoneira has the right to plan up to 1480 acres of lemons over the next three years at the Cadiz Ranch operations in the Cadiz Valley in San Bernardino County. We currently have 360 acres of lemon trees growing on the property leased from Cadiz and expect to begin realizing revenue from a portion of these orchards in fiscal year 2016.
The key investments that we made in 2015 compliment a number of other investments and acquisitions that we have made in prior years including our purchase of Associated Citrus Packers Incorporated, the packing house property and equipment of the Marlin Ranching Company in Yuma, Arizona, and our investment in Rosales S.A., a citrus packing, marketing, and sales operation located in La Serena, Chile.
In addition, as I referenced earlier in my remarks, during the fourth quarter we completed the sale of our Wilson Ranch property which has 52 acres of land including 33 acres of avocado orchards located near the City of Fillmore, in Ventura County, California. The sales price of $2.8 million represents approximately $53,000 and $83,000 per acre for total acres and productive avocado acres respectively and the gain on the sale was approximately $1 million. While avocados are an important and profitable component of our agribusiness, we felt that this was a good opportunity to strategically monetize the land and the water.
Also in fiscal 2015 we substantially completed the expansion of our lemon packing facilities in Santa Paula, which is expected to be fully operational in the first quarter of fiscal year 2016 and is expected to double the annual capacity of our lemon packing operations.
In addition, the new packing house is anticipated to increase our efficiency and significantly reduce labor costs which will lead to improved agribusiness operating margins beginning in fiscal year 2016.
We plan to utilize some of this new capacity with the production from approximately 1000 acres of lemon orchards that are currently in development and are expected to become productive over the next few years. The expanded and modernized facility will also ensure that we have ample capacity to integrate new orchards as we strategically acquire additional agricultural land.
We continue to be focussed on adding productive citrus acreage to our land portfolio. We see a healthy pipeline of potential acquisition candidates in both our core California and adjacent markets as well as internationally.
Lastly on our agribusiness, I’d like to make some comments regarding the ongoing California drought. We have begun to see significant precipitation from the predicted El Niño weather pattern. We hope the rain and more importantly snow in the California Mountains continues which should ease drought conditions.
As we have discussed before and have included in our previous filings, we believe, we have access to adequate water supplies to support our operations, although we have incurred certain additional irrigation and crop treatment cost and have had to be more strategic in our water usage.
In addition, we have seen more effects in fruit sizing as a result of the drought, however our operations have not been significantly affected. If the drought continues or worsens or if the state of California or other governmental agencies implement regulatory restrictions or costs, our business could be impacted.
In response to the drought, we have an ongoing plan for irrigation improvements in fiscal that includes drilling new wells and upgrading existing wells and irrigation systems.
Turning now to our real estate development segment, as many of you are likely aware over Limoneira’s century long operating history we have been involved in real estate and community development in the cities of Santa Paula and Ventura. We are very excited about the significant progress we made on this important aspect of our business in fiscal year 2015.
As we previously announced in November, we formed Limoneira Lewis Community Builders LLC and a development partnership between Limoneira and the Lewis Group of Companies for the development of the Santa Paula Gateway East Area 1 project which we renamed Harvest at Limoneira. We are very pleased to partner with the Lewis Group, a leading real estate development investment company with a proven track record of developing highly successful and sought after residential and commercial projects throughout Southern California.
Based in Upland California and founded in 1955, the Lewis Group focuses on developing mixed used plan communities and residential sub divisions in California and Nevada as well as building and earning rental communities, shopping centers, office and industrial parks.
To consummate the transaction with Lewis, we formed Limoneira Lewis Community Builders and contributed our East Area 1 property to it. We then sold a 50% interest in the LLC to Lewis for $20 million comprised of a $2 million deposit received in September of 2015 and $18 million received on closing the transaction. Also for our contribution we expect to receive 25% to 80% of the net cash flow of the project based on cash flow milestones provided in the partnership agreement which is estimated to aggregate approximately 70% of total net cash flows to Limoneira including the initial $20 million distribution and the balance of net cash flows to the Lewis Group over the estimated 7 to 10 year life of the project.
This partnership plans encompass the development of a 500 acre master plan community with up to 1,500 residential units which represents a significant portion of single family detached homes expected to be built in Ventura County in the next several years. The project is also expected to include an elementary school, a 38 acre community park and other master plan community amenities. Harvest at Limoneira will benefit from its highly desirable location just 14 miles from the Pacific Ocean, easy access to several major highways and other transportation hubs and proximity to the greater Los Angeles area.
We anticipate that the partnership will begin receiving security deposits from homebuilders for lot sales in less than two years or mid 2017 and the sales of lots is expected to begin in the fourth quarter of 2017.
Several homebuilders are expected to participate in home construction at Harvest at Limoneira. The diversity and price points of housing types will provide opportunities to a wide buyer profile. Home prices are estimated to range from $300,000 to $750,000. We expect that the partnership will recognize revenue upon delivery of lots to homebuilders with Limoneira recording its share of the partnerships earnings under the equity method.
When we first announced the agreement with the Lewis Group in September, we stated cash flow of projections for Limoneira over the 7 to 10 year life of the project to be approximately $100 million including the $20 million we received on forming the partnership. This calculation was based on an average home price of $480,000. Each $50,000 increase in the median home sales price for the project is estimated to result in approximately $20 million to $30 million of additional net cash flow to Limoneira assuming no other forecast assumption changes.
So a $530,000 median sales price is estimate to equate to approximately $125 million in cash flow to Limoneira and a $580,000 median sales price is estimated to equate to approximately $150 million in net cash flow to Limoneira.
In November of 2015, the median home price of Ventura County was $514,000. While we all know that the real estate values may fluctuate over the life of the project, we believe that there is a meaningful upside potential to our initial estimate of $100 million net cash flow.
We are also planning the development of an additional 40 acres of commercial properties adjacent to the residential development that is not included in the partnership plans and financial projections, which represents additional cash flow opportunities beyond the projected value stated for the residential project. We’ve been extremely encouraged by the strong interest from potential tenants including big box retail, drug stores, banks, outpatient medical facilities and educational centers.
The synergies between the residential and commercial components of the project will create a highly desirable community in a prime Southern California location. The significant cash flows expected from the residential and commercial aspects of the project are planned to be reinvested into the growth of our business particularly capitalizing on opportunities to expand our agribusiness enabling us to generate long term agribusiness sales and operating income growth.
Now turning to the rental operation segment of our business, we completed the development of 65 additional agricultural workforce housing units in Santa Paula, California which were fully occupied in August 2015. On an annual basis, we expect that this will contribute approximately $900,000 of additional rental revenue. We also anticipate that the additional farmworker housing units will help us maintain a consistent supply of labor for our agribusiness operations for many years to come.
This is a very exciting time for Limoneira. Over the past several years we have taken steps that strengthen the foundation of our business by enhancing our ability to be a global year round lemon supplier along with capitalizing on opportunities to unlock the value of our real estate assets. We continue to deliver healthy cash flow which enabled us to recently increase our quarterly dividend by 11% as we remain intensely focussed on maximizing shareholder value.
We entered fiscal year 2016 with the opportunity to significantly improve operating income primarily related to cost savings from the company’s new lemon packaging facilities, additional revenues from additional farmworker housing units and the elimination of lease expense resulting from the acquisition of the previously leased Sheldon ranches.
Several years ago we set out to become one of the world’s leading suppliers of lemons, expand our agricultural properties and we wanted to monetize certain properties and turn East Area 1 from a conceptual idea with many regulatory hurdles into a reality. During the past five years we have increased our lemon revenue from $31 million to $79 million and increase the amount of cartons we sell by 67% from 1.8 million cartons to expected volume of approximately 3 million cartons in 2016.
In addition, we expanded our agricultural acreage by 55% and added to our available water rates. We are well positioned for long term growth and are very excited about fiscal year 2016 and the future of Limoneira.
With that, I’ll turn the call over to Joe.
Thank you, Harold. Good afternoon everyone. I will discuss some of the details of our financial results for the fourth quarter and year ended October 31, 2015.
In the fourth quarter of fiscal 2015, revenue was $14.2 million, compared to $16.3 million for the fourth quarter of 2014. Agribusiness revenue decreased 15% to $12.9 million, primarily due to lower lemon revenues.
Rental operations revenue was $1.3 million in the fourth quarter of 2015, compared to $1.2 million in the fourth quarter of last year. Real estate development revenue was $21,000, compared to $104,000 in the same period last year.
Fourth quarter 2015 agribusiness revenue includes $11.6 million of lemon sales, compared to $13.8 million of lemon sales during the same period of 2014. Approximately 388,000 cartons of fresh lemon were sold during the fourth quarter of 2015 at a $25 average price per carton compared to 413,000 cartons sold at $29.09 average price per carton during the fourth quarter of 2014.
As anticipated we do not record any avocado revenue in the fourth quarter of fiscal year 2015 and avocado revenue in the fourth quarter of last year was $54,000. The recognized $572,000 of orange revenue in the fourth quarter of 2015 is essentially flat compared to $585,000 of orange revenue last year in the same period.
Specialty citrus and other crop revenues were $701,000 in the fourth quarter of 2015, compared to $585,000 in the fourth quarter of 2014 which is primarily due to lower potential [ph] revenues.
Turning to costs and expenses for the fourth quarter of fiscal year 2015, we incurred $19.1 million of costs and expenses compared to $20.8 million in the fourth quarter of last year. The year-over-year decrease in operating expenses reflects lower agribusiness costs and lower selling, general and administrative expenses.
Operating loss for the fourth quarter of fiscal year 2015 was $4.9 million, compared to $4.5 million in the fourth quarter of the previous fiscal year. EBITDA improved to $2.4 million in the fourth quarter of fiscal year 2015 compared to a negative $3.3 million in the fourth quarter of last year. EBITDA in the fourth quarter of 2015 includes $5.0 million gain associated with the sale of 140,000 shares of Calavo Growers stock and a $1 million gain associated with the sale of the Wilson Ranch.
Net income applicable to common stock, after preferred dividends for the fourth quarter of fiscal year 2015 was $500,000 compared to a net loss applicable to common stock of $3 million in the fourth quarter of 2014.
Fourth quarter 2015 net income includes the previously mentioned Calavo stock and Wilson Ranch gains. Earnings per diluted share for the fourth quarter of fiscal 2015 were $0.04 and were a net loss per diluted share of $0.21 for the same period of fiscal year 2014 with both periods based on approximately 14.1 million weighted average diluted common shares outstanding.
The difference between the company’s previously expected fourth quarter fiscal year 2015 operating results and its actual operating results is primarily due to lower lemon revenue related to less volume of fresh lemon cartons sold and additional legal expenses associated with our joint venture with the Lewis Group offset by lower operating expenses and the gain on the sale of Calavo stock.
Regarding our full year results, revenue was $100.3 million compared to $103.5 million last year. Operating income for fiscal year 2015 was $4.6 million compared to $9.9 million last year. Lower 2015 operating income primarily reflects approximately $2 million lower orange revenue on lower prices and volume, $700,000 lower lemon revenues and higher agribusiness expenses primarily associated with the company’s packaging operations in Yuma, Arizona, that was acquired June of 2014.
In addition, while selling, general and administrative expenses for fiscal year 2015 were less than fiscal year 2014 by about $500,000, primarily reflecting lower incentive compensation, such expenses include approximately $900,000 in legal, consulting and accounting expenses associated with the Company’s real estate development joint venture and approximately $400,000 of these expenses were incurred in the fourth quarter.
EBITDA $15.4 million for fiscal year 2015 and includes the aforementioned gains associated with the Calavo Growers Stock and the Wilson Ranch compared to EBITDA of $14.0 million last year.
Net income applicable to common stock was $7.1 million for fiscal 2015 compared to $7 million last year. Earnings per diluted share for fiscal years 2015 and 2014 were both $0.46.
Regarding our cash flow and balance sheet, fiscal year 2015, net cash provided by operating activities was $7.7 million compared to $16.1 million last year. The decrease in cash flows from operating activities reflects exclusion of gains from the sale of Calavo and Wilson Ranch which are including in investing activities.
Net cash used in investing activities was $25.8 million for fiscal 2015 compared $28.6 million last year when both years including our investments in the expansion of our lemon packing facility and additional farm worker housing units as well as investments in real estate development projects.
Net cash provided by financing activities was approximately $18.1 million for fiscal year 2015, compared to $12.5 million in the same period of last year. As of October 31, 2015, long-term debt was $89.2 million compared to $67.8 million at the end of fiscal year 2014.
The increase in long-term debt is primarily related to funding our strategic investments, including agricultural property development. lemon packinghouse expansion, farm worker housing project, as well as ongoing investments in Santa Paula Gateway real estate development project.
Now I'd like to turn the call back to Harold to discuss our fiscal year 2016 outlook.
Thanks, Joe. For the fiscal year ending October 31, 2016 we expect to sell between $2.7 million and $3 million cartons of fresh lemons at an average price of approximately $22.50 per carton and we expect to sell approximately 8.5 to 9.5 million pounds of avocados at approximately $0.80 per pound.
We estimate operating for fiscal year 2016 will be approximately $7.8 million to $8.3 million compared to operating income of $4.5 million for 2015. 2016 estimated operated results reflecting an anticipated increase in operating income primarily related to cost savings from Company’s new lemon packaging facilities, additional revenues from additional farm worker housing units and elimination of lease expense resulting from the acquisition of the previously leased Sheldon Ranches.
2016 EBITDA is expected to be in the range of $13.6 million to $14.1 million as compared to fiscal year 2015 EBITDA of $9.4 million excluding the gains from the sale of Calavo stock and our Wilson Ranch.
We estimate fiscal year 2016 earnings per diluted share to be in the range of $0.25 to $0.29, adjusted earnings per share are expected to be in the range of $0.42 to $0.46 a share which excludes the transaction fee of $1.1 million included and are incurred on the close the Limoneira/Lewis joint venture, and an expected increase in depreciation and interest expenses that results from the new packing facilities, the acquired Sheldon property and the additional farm worker housing units.
The fiscal year 2016 estimated incremental increase in depreciation and interest expense combined with the $1.1 million closing cost associated with the Limoneira/Lewis joint venture is approximately $3.8 million which represents an estimate $2.4 million in expense net of income tax or approximately $0.17 earnings per diluted share.
As Joe previously described earnings per diluted share for fiscal year 2015 were $ 0.46. Gains from the sale of Calavo stock and the Wilson Ranch totaled $6 million and are included in our fiscal year 2015 earnings. These gains represent approximately $3.8 million net of income tax or approximately $0.27 earnings per diluted share. Excluding the Calavo stock and Wilson Ranch gains earnings per diluted share would have been approximately $0.19.
Now I’d like to take a moment to summarize a number of investments that we have made over the past few years that will help drive, improved operating results in fiscal 2016 and into the future.
We have approximately 1,000 acres of orchards in development that are expected to become productive over the next few years. Our new Santa Paula lemon packing facilities are expected to improve margins in fiscal year 2016 and double our annual capacity.
We anticipate cost reductions of approximately$1 per carton packed. So for example, on sales of 3 million cartons we would save $3 million. Our ongoing vineyard development at Windfall Farms is expected to begin production in 2017, and we substantially completed our farm worker housing project and expanded rental business which is expected to generate revenue of approximately $900,000 on an annual basis.
And with I’d now like to open up the call for your questions. Operator?
[Operator Instructions] And we’ll take our first question from Eric Larson with Buckingham Research Group.
Yes. Good afternoon everyone.
Just a few questions kind of from the top side. Looking at cash generation next year can you give us little more color on that? I’m assuming that now that you’ve got the packing facility behind you, the rental build-outs, I think your CapEx is about $25 million this year versus $28 million a year ago, if I’m not mistaking. What can that number be in 2016?
Eric, I think there is a couple of ways to think about. Harold talked about in our guidance kind of on EBITDA level [Indiscernible] in the range of $14 million. So, we would certainly expect that our investing activities, the amount of money we’ve been spending on the packing house and the farm worker housing, that’s going to go way down in 2016 because those projects are basically finished or still some tail end to the packing house. So on that side of the cash usage will be significantly less.
As far as cash generated from ongoing operations as you pointed out from the benefits we’re expecting from the packing house and the lease expense going away, we would expect that good cash flow from operating activities, but we have not forecasted it at that level to tell you what cash flow would be at an operating level. I think the EBITDA number that we talked about around $14 million is a good way to think about it.
Okay. And then when you look at your total debt of $89 million to the $89.2 million, how much of that is now interest bearing expense to flow through your P&L?
The only thing – that’s a good point, that’s the reason for this increase in depreciation expense – excuse me, interest expense that we pointed out. With the packing house of about $25 million or so and the farm worker housing of around $9 million or so, moving out of CapEx into in operations. The only – really we’ll have several million dollars of still orchards in development. They will still have capitalized interest on them.
And then there would be a portion of the investment we have in the new joint venture which you can continue to capitalize, so it’s probably roughly half round numbers. Again, we haven’t look and kind of given that precise number, but roughly $40 million or so to $50 million would probably still be subject to some capitalization and rest of it would be subject to interest expense that would flow through the income statement.
Okay. Then the -- and this might be a question for Harold, but you might have a claw back on your gateway project of maybe as much of $15 million. Is one way to maybe fund that Harold is through the sale of more Calavo shares as opposed to raising debt and I’m assuming you have them about 360,000 shares left of Calavo? Is that a correct number?
Yes. That is exactly the number. We sold 140,000 shares in 2015 down from 500,000, leaving us with 360,000 shares. And that certainly is a way that - the Board authorized us to sell up to 200,000 shares, so we do have a little bit of powder there. We could certainly go back for the sale of more. We remain bullish on Calavo though, even though it’s non-core asset for us. So, picking our time in the market is going to be something that we’ll be considering. But that certainly is a way to help us bridge that $15 million delta along with our ample lines of credit currently.
Another thing Eric to think about on that is the timing of that expected and it is still very much in estimate at this point, but as we – what you’re referring to is the potential that the partners may need to contribute some additional cash into the joint venture until the joint venture starts to generate cash flow either through its own financing upside or revenues, but this year we’re anticipating that number to not be all that significant because we’re kind of still in the soft cost stage if you will. Later on this year we’ll start to get more in to – more heavy duty infrastructure moving where the cost would be more. So it’s really going to be little bit later in terms of how much and when that money might start to be needed.
The other thing we didn’t touch on our release but – or in this call, but it’s in our release and in the K. And we took advantage of the low interest rates and we fixed - in the process of fixing some interest rate, debt and fixed term and so we financed about $10 million -- $8 million to $10 million of that packing house equipment that we’ve been talking about. So that actually freeze up some additional dry powder for acquisitions as well as the potential for some money that the joint venture might need.
Okay. And then I’ll turn over here, I could ask questions whole day, but the outlook for your volumes, your carton volumes for lemons, the range of 2.7 to 3 million. It’s struck me as being a little lighter than what I had been expecting. I was expecting something were three was sort of the bottom end of the range, could be as much as 3.2. Has something happened in terms of the volume of lemons, the forecast for lemons going out is it smaller lemons or because you did say that sizing was starting to become somewhat of an issue, but can you make a comment on the case volume projection for next year relative to my comment?
Sure. So we’re two months into the first quarter and we had lower than hoped for I guess utilization levels out of District 3, and we got behind in our annual goal which was upwards of 3.3 million cartons by about 200,000 cartons year to-date. We still because of the recent rains that are coming and that have just hit us, that gives us reason to be more optimistic about our District 2 crop which is typically our spring/summer crop and greater sizing and we believe the pieces are there, which we just decided to bring our total forecast down a bit just because of our slower start in the desert which we’ve just finished. So that’s part of it.
And also we’ve -- because of the dry weather we are anticipating lower utilization levels all through District 3, District 2 and District 1 because of fruit quality challenges that we’ve experience from the drought. So all of those things have brought us to this point where we actually felt it was probably prudent to bring our overall forecast down for the year.
So, when you talk about fruit quality that means that they’ve got some [brown sides] [ph] or something and that means you have to squeeze them instead of selling them as whole lemons, does that…?
That’s it. It goes to the juice plant and so we don’t recognize that fruit that goes to the juice plant in our fresh carton forecast.
Right. So, there is a little bit of slippage from some lower quality of fruit here as well?
Exactly, that’s it.
Eric, over the last three years the lemons have been right about $2.8 million a year in terms of cartons, so it’s in the range of where we’ve been very much so, and we have not – well, we have about 1,000 acres in development that will be coming online in the next few years. If you look at just last year or two there hasn’t been a significant amount of brand new lemons acreage acquired. So it’s just going to be a function of whether utilization and Mother Nature and so forth year on year and how the production is going to be. But it’s right in the range of where we’ve been for the last few years.
Right. I was actually thinking there might be even a bump up this year that was sort of within my, it was in my number, so that was….
Well, just one final comment on that, Eric. So we have very aggressive growth numbers, now that we have the capacity in our new packing house to go recruit new fruit. We didn’t put any of that go get fruit into our forecast. So, we’re knocking on the doors and turning over the rocks and trying to recruit new growers to bring their fruit to us. Now that we have the extra capacity at these in a much more – with a much more efficient packing house, and so we’re hopeful that will bring them in and exceed this number that we’ve just communicated on, but we didn’t comfortable putting it into our forecast.
Okay. Thank you. I’ll pass it on.
Our next question comes from Brent Rystrom with Feltl.
First question, can you kind of remind us of the timeline on the real estate development from both the reinvestments into the projects as those lot sales transition into cash flows, kind of what you thinking as far as cash out,? What do you thinking as far as cash in the next couple of years? And what are some of the milestone types?
We touched on that a bit in that thinking about the next two years until as we talked about at our anticipated timeline that we think the joint venture will start to receive some deposits in mid 2017 and then we’ll start to have its own sales of units towards the end of 2017 and right in that general timeframe as well as when we would expect the joint venture to be in a position that would make sense to start getting its external financing. So as we talked about between and over the next couple of years it could be somewhere between $10 million and $15 million each that the joint venture partners may need to contribute depending on some of that timing I just mentioned. And then it will start to move to a place where it can finance itself and then within a couple of years it will start being to throw off some significant cash flows back to the partners.
And just what I understand Joe. When you say it will start to throw off significantly cash flows to the bottom [ph], so let’s say that to couple years after 2017, let’s call it 2019, in the first sales is it structured where Lewis gets more and then your amount ramps up as there is more returns in the property or does it hit the same hurdles through the life of the property?
No. And that is included in all the detail of the actual agreement to the extend you want to read it all, but you’re exactly right, there’s a milestone or waterfall type of schedule that varies between the partners starting off with Lewis a little bit more in the front, but it had been pretty quickly gets to 50/50, I think I’m just going for memories of rather than having it all committed, but I think its around 25/75, I think initially with Lewis getting more first and then we go to 50/50 and then pretty soon though it flips the other way and lemon era starts to get most of the cash to the point that out at the end that we’re getting 80% of the cash flow and that’s we say that over the life of the project the expectation is we’re going to generate or we’re going to receive 70% of all of the cash.
Okay. Thinking about deployment of that cash, if we were to think long term and use 100 million as a base number maybe and then maybe use 150 million as an optimistic number. Let’s say you get a $100 million over 7 or 10 year life of the partner. How do you anticipate the point that, and by that I mean, of that 100 million do you plan to delever some of the existing operations and then use the rest with some leverage to acquire new assets, new land, how are you thinking about that structurally, strategically?
So, I’ll hit that. So, we have lots of discussion about the proper amount of leverage to put on to new acquisitions, but just for a simple way to think about it, if we were 30% to 50% of the fair market value of any acquisition structured with debt, that might be a safe way to think about it. So, we would anticipate continuing to expand our acquisitions in our agricultural properties with that level of leverage and also using additional equity to do that. So there’ll be – you put your finger on each of the dynamics, they’ll be a part of the growth which will bring new leverage in on the new assets that are acquired. They’ll be part of the growth that will take some of that free cash flow and delever our existing balance sheet and part of it that will be used as the equity capital to expand the acquisitions.
Thank you. Harold, any updates on the timing of when we might see realization of maximizing some of the water assets?
We have some really interesting -- as you might imagine it’s a very interesting time right now in California and Arizona. The governor still has the State of California under a state of emergency, in essence has a well-drilling moratorium established across the entire state. The governor is challenged every basin in State of California to come up with their own Groundwater Management Plan or GMP. Some of those basins are more organized and cooperatively working towards the establishments of those groundwater management plans. Some of those GMPs are being push towards the area where there will be markets that are created and buy/sell relationships will take place. We are in some of those basins.
Until that is formalized and has taken official place we’re sort of in a holding place from our ability to monetize some of our surplus rates. However the Santa Paula basin in particular was adjudicated in 1991 and has sort of cooperatively been buying and selling pumping rates for a period of time now, and I would anticipate that you’ll see an acceleration not only leasing extra water rate which Limoneira has been practicing over the last decade. But now actually beginning to give us the opportunity to monetize surplus rates and so I would anticipate that you’ll see some actions and [Indiscernible] I think you may see some transactions in 2016, 2017 of some surplus rates in the Santa Paula basin.
All the while we continue to work with the regulatory agency of the United Water Conservation District on the establishment of not only safe yield determination hydro geologically, but also yield enhancements strategies in which we can actually enhance the amount that we can pull out of the basin by moving water around more efficiently and in the event that that is all approved by the regulatory agency we feel confident that we have the ability to create new water which would give the opportunity to monetize additional surplus water and again we’re hopeful to see some of that activity beginning in 2016 and 2017.
Thank you. Next question, kind of an odd one, that either on avocados or lemons, do you guys have any exposure to Chipotle directly or indirectly?
Only in the sense that Chipotle was one of Calavo, who is our sister company and our go-to-market strategic partner for the sale of our avocados one of their largest customers. So as we’ve seen pullback in Chipotle’s business Calavo seen pullback in that customer -- from that customer. All the while Calavo has been very adroit in moving around its customer base. So, they haven’t slip back in their total volume marketed. So it really has not impacted Limoneira at all nor has it really impacted Calavo. It’s just been more disruptive from the standpoint of not having to go find new homes for that fruit.
Another kind of odd question, just curiosity, do you have any rents that are subject to production? So I know you have fields that you rent for field crops and with the heavy rains, if you have any lands that are subject to the production, let’s say you get a higher rent if there is more production, has there been an impact if you have any of those?
No. We’ve been pretty fortunate and structuring just straight out, go to the mailbox and get the rent check rent, Brent. So whether our tenants experience good times or bad times they still pay us rent, knock on wood. So far that’s been very effective. Mostly they are large berry growers or vegetable and row crop growers. And the rain has been disruptive for them certainly. But at this point we’ve seen this kind of weather activity. In the past they’ve been very, very credit worthy tenants and we don’t anticipate any problems.
And then my final question, could you guys give us a give run through the economics of -- you call it the go get fruits , but when you’re thinking of packing fruits from others that added $1 in cost savings I’m assuming that as $1 of added profitability for each carton. Were you actually making money previously on fruit path for others was it breakeven, or was it profitable and how does it change because of the lower cost?
So the simple way maybe to explain it is, we may based on where we were in any given time of the year based on the throughput and our coverage of direct and variable costs somewhere between $0.50 and $1.20 a carton. So if you could just sort of smooth that out and say, okay we made a $1 a carton on all the outside growers fruit before now with the investments in the packaging house that would yield us $2 a carton or any incremental greater benefit that the efficiency of the new packaging house would bring us.
All right. Thank you very much guys.
[Operator Instructions] We’ll take our next question from Chris Krueger with Lake Street Capital Markets.
Good afternoon, guys.
Hi. I know in your guidance you indicated you are looking for an average lemon, carton price of $22.50 for the upcoming fiscal year. I don’t know if you have that in front of you, but what was the average overall for 2015?
$24.81, so it’s a little high.
Okay. And then for avocado you are looking for $0.80 going forward, what was that average in 2015?
Joe, was that $0.92?
$1.02 last year.
$1.02, okay. And then just looking at your lemon growing operations it seems like you’ve been very heavily constituted in California, is there any way that I kind of diversify away from California just so when these weather and drought issues come up you are not completely you know subject to that.
There definitely is and we are in the sort of the process of working on doing that and I’ll take you back to an acquisition we made earlier where we purchased a minority interest in a Chilean packaging house in a place called La Serena, at Chile. And the strategy of that investment was to begin working with the high quality growers that bring their fruit into that packaging house which we then now work in partnership in helping market and sell that fruit using our global marketing and selling network.
But the real opportunity for us is to be able to position ourselves to acquire some of those ranches and production areas down in Chile. It turns out that they are owned by institutional capital that have horizons and those horizons are coming to fruition and they are actually seeking buyers and so by being first in line we have a great opportunity to position ourselves to acquire these properties, back to your earlier point that diversifies geographically where we are producing gives us a nice opportunity to diversification of not being exposed to the same drought conditions and the pest conditions we face in California.
I will say though that wherever we go and are producing or at least working with producers we find new sets of call it opportunities and realities of that production area that we have to overcome or mitigate those risks as well, but we do believe that global geographic diversification is something that you’ll see more and more as we grow as a lemon producer and marketing company.
Okay. Then shifting over to the real estate, can you just restate or re-clarify I think, I believe you said in November of 2015 the average price was $514,000. Did I get that number right and where was that, was that a specific to that calendar year, what was that?
Yes. So we actually pulled that right out from the Ventura County average of all the sales in 2015 up through November of 2015 and it was $514,000. And we’ll just have to see I’m waiting for the new numbers, we are all waiting for the new numbers of the median and the mean home prices to come out but just anecdotally it’s felt like the market has become increasingly more restricted and home sale numbers have continued to be pretty robust. So I wouldn’t be surprised if that number continued to decline.
All right, sounds good. That’s all I got. Thanks.
And next we’ll take a follow up question from Eric Larson with Buckingham Research Group.
Yes, thanks guy’s just one more quick question. And it’s kind of related, it’s related to your guidance. Last year, Harold and Joe, I think you had mentioned at one point that you are building your new packaging facility it’s right next to your old one and it resulted in a fair amount of inefficiencies for carton as well which was sort of one time in nature in 2015. So when you talk about picking up a $1 on average, $1 per carton of packaging margin couldn’t that number in 2016 be better and that maybe your guidance might be conservative?
The answer is absolutely and I think that’s very [Indiscernible]. The internal go get number of the efficiency is much greater than a dollar, so we are trying not to overpromise and under deliver. We’ve tried to bring our forecasts down in terms of the efficiency. The other thing that I would mention though is for our company this has been and continues to be a considerable investment not only financially but also culturally and this is just the way we run this new machine is very different in the way the old packaging house used to work.
So there is cross training issues, there is labor issues, there is getting our arms around this new machine that we’ve now invested in, and so we can see the efficiency in front of us but if we also factored in or try to factor in a sort of establishing a learning curve and taking time to get to that efficiency. So that’s the reason for the sort of the under stated efficiency.
Okay. Thank you.
And ladies and gentlemen, there are no further questions. I’ll turn it back over to our host for any closing or additional remarks.
Thank you very much for your questions and continued interest in Limoneira. We are at the ICR Conference and will be presenting tomorrow. We also will be attending additional select investor events over the next few months and hope to see many of you there. Thank you again and have a great day.
Thank you for your participation. This does conclude today’s call.
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