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Bluegreen Corp (NYSE:BXG)

Q1 2008 Earnings Call

May 9, 2008 8:30 am ET

Executives

Devin Sullivan - Senior Vice President of The Equity Group Inc.

John M. Maloney, Jr. - President and Chief Executive Officer

Anthony M. Puleo - Senior Vice President and Chief Financial Officer

Operator

Good morning ladies and gentlemen and welcome everyone to Bluegreen’s First Quarter 2008 Pre-recorded Conference Call (Operator Instructions). I would now like to turn the presentation over to Mr. Devin Sullivan, Senior Vice President of The Equity Group.

Devin Sullivan

Our speakers on this pre-recorded call will be John Maloney, President and Chief Executive Officer of Bluegreen and Tony Puleo - Senior Vice President and Chief Financial Officer.

Before we get started I would like to remind everyone that statements made during today’s call may constitute forward-looking statements and are made pursuant to the Safe Harbor Provision of the Private Securities and Litigation Reform Act of 1995.

Forward-looking statements are based largely on expectations and are subject to a number of risks and uncertainties including but not limited to the risks and uncertainties associated with economic, competitive and other factors affecting the company and its operations, markets, products and services as well as the risk that growth and profitability will not occur as anticipated.

The company may be unable to sell notes receivable on satisfactory terms if at all, adversely impacting the company’s liquidity and profitability; the performance of the company’s vacation ownership notes receivables may deteriorate in the future; the company may not be in a position to draw down on its existing credit lines or may be unable to renew or replace such lines of credit; real estate inventories, notes receivable, retained interest in notes receivable, sold or other assets will be determined to be impaired in the future; risks relating to pending our future litigation, claims and assessments; that the company will not be able to acquire land or identify new projects as anticipated; sales and marketing strategies relating to new resorts and communities properties will not be as successful as anticipated, new resort communities properties will not open when expected and will cost more to develop or may not be as successful as anticipated; the relationship with Cedar Fair Theme Parks will not be put in place or be as successful as anticipated; retail prices and home site yields for Communities properties will be below the Company's estimates; cost of sales will not be as expected; sales to existing owners will not continue at current levels; deferred sales will not be recognized to the extent or at the time anticipated; and the risks and other factors detailed in the Company's SEC filings, including its most recent Annual Report on Form 10-K filed on March 3, 2008.

In addition matters discussed during this call contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and involve substantial risks and uncertainties, including but not limited to the risk that because of business, economic or market conditions Bluegreen may decide not to pursue an offering of its securities or that the offering may not be made in the amounts contemplated, if at all.

In addition to the risks and uncertainties identified above, reference is also made to other risks and uncertainties detailed in reports filed by Bluegreen with the Securities and Exchange Commission. The Company cautions that the foregoing factors are not exclusive.

Any discussion regarding an offering of Bluegreen Securities shall not constitute an offer to sell or the solicitation of an offer to buy any securities. Securities may not be sold, nor may offers to buy be accepted prior to the effectiveness of a registration statement, nor shall there be any sale of the securities in any state in which such offer, solicitation, or sale would be unlawful prior to the registration or qualification under the Securities laws of any states.

I would now like to turn the call over to John Maloney, President, and Chief Executive Officer of Bluegreen Corporation.

John Maloney

Thank you, Devin. Good morning and thank you for joining us today.

We are taking a different approach to our post release communication practices. Because our conference call participation has been modest, we have decided to try this new format, which has been expanded to attempt to provide you with additional information as part of our prepared remarks.

If you have additional questions or concerns, please feel free to contact Tony or me and we will attempt to answer any questions you may have within, of course, the confined so Reg FD. Now let’s discuss our results for the first quarter 2008.

Bluegreen Resorts posted its 26th consecutive quarter of comparable quarterly sales growth, while sales at Bluegreen Communities remain slow. Both Bluegreen Resorts and Bluegreen Communities operated profitably during the first quarter, generating field-operating profit of $5.8 million and $30.9 million respectively; however field operating profit at each of these segments declined over the comparable prior year period.

Lower profits at Bluegreen Communities reflect the ongoing difficult residential real estate environment. We are continuing our efforts to identify and implement additional strategies that we hope will enhance sales and generate profitable returns.

Communities’ field operating profit of 19% is, we believe, a reflection of our disciplined approach to this business and indicative of how we hope to weather the current economic environment. We have not acquired any new properties for Bluegreen Communities in 2008. Although we regularly consider potential acquisitions, we are monitoring the current challenging real estate environment and there is no assurance that any transactions will be consummated.

Lower profitability at Bluegreen Resorts is primarily the result of a $5 million increase in estimated uncollectible vacation ownership notes receivable during the first quarter, compared to the first quarter of 2007. Tony will provide additional color on this a bit later in the call.

I want to stress that our timeshare business remains quite strong. During the first quarter of 2008, our owner base expanded, total sales and sales to existing owners increased significantly, forflaw [ph] rose and conversions approximated historical norms. Our Bluegreen Vacation Club owners currently have 45 in network resorts to choose from, as well as a variety of other ways to enjoy their vacation points and club benefits. In addition, we are continuing to expand our portfolio of vacation destinations and new in demand markets, including Las Vegas, Williamsburg, and Atlantic City.

Here are some of the specific details about our recent performance of Bluegreen resorts:

Higher sales during the first quarter of 2008 were due to a significant increase in sales to existing owners of the Bluegreen vacation club, as well as higher same resort sales led by offices at the

Fountains Resort in Orlando, Carolina Grand sales office in Myrtle Beach, and an offsite sales office in Las Vegas, Nevada.

At March 31, 2008 our owner base had increased to approximately 186,500 members. We generated approximately 69,000 tours during the first quarter of 2008, compared to 62,-000 tours in the first quarter of 2007. Our overall conversion rate for owners and non-owners during the first quarter of 2008 was 14%, which was down from the 15% conversion weight we realized in the first quarter of 2007, but is up from our conversion rate of 13% for the 2007 calendar year.

The conversion rate for new prospects only was 11%, down from 12% in the first quarter of 2007, but again up from 10% in the 2007 calendar year.

On a blended basis, which combines sales to existing owners and new sales, our average resort sales price in Q1 2008 was $10, 914.00 compared to $10.566.00 in the first quarter of 2007, reflecting the positive impact of a system wide price increase effective January 1, 2008.

Our newest properties in Las Vegas and Williamsburg, Virginia are scheduled to welcome guests this summer.

We recently announced our entry into another of the countries most popular vacation destinations, Atlantic City, New Jersey, with the purchase of 1,200 vacation intervals at the Royal Suites at Atlantic Palace which is located beachfront on the world famous Atlantic City boardwalk. We plan to renovate approximately 16,000 square feet of the resort in order to establish a sales preview center.

Moving to Vacation Club, sales in Atlantic City are expected to begin in the second quarter of 2008.

We also recently expanded our agreement with Cedar Fair Theme Parks, one of the largest regional amusement park operations in the world. This new agreement expands Bluegreen’s onsite sales presence from three Cedar Fair locations to 11 parks across the United States and Canada, as well as four adjacent hotel properties.

We’ve commenced selling three day, two night introductory vacation packages at five Cedar Fair Parks and anticipate being in all of the locations, resulting from our outstanding relationship by Memorial Day. This relationship is similar to another one we enjoy with another of the countries premier family theme parks Six Flags.

Regarding financing: as many of you are aware, the commercial credit markets remain unsettled; however I am very pleased to report that we recently successfully completed several financings as evidenced by our $60 million term securitization of timeshare loan-backed securities completed in March of 2008 of $150 million timeshare receivable purchase facility with BB&T and a $75 million acquisition development, and conception facility with Textron financial corporation.

It is important to note that during some of the most difficult economic periods the timeshare has historically demonstrated a remarkable resiliency. From 1990 to 2007 the industry grew from approximately $1 billion in annual sales, to what is anticipated to be in excess of $10 billion.

We believe that the combination of Bluegreen’s expanding portfolio of in demand drive-to vacation destinations, our customer centered business model, solid financial infrastructure, and marketing alliances with major national and regional corporations, have allowed us to grow since entering the market in 1994. We believe that these same factors will prove to be important to us in the current macro economic environment.

The company is continuing to reduce capital needs. While Bluegreen previously announced that it was considering pursuing a common stock rights offering, the company intends to broaden its source of potential capital. Accordingly, Bluegreen plans to file a shelf registration statement which would, in the future, permit it to raise long-term capital for the issuance of common stock, preferred stock, debt, and/or convertible debt.

In the event such an offering relatively consummated the purpose would be to further strengthen Bluegreen’s balance sheet and to support growth, including growth through acquisitions. We recognize that a common stock offering would be highly dilutive at our current stock price and as such we have no immediate plans to pursue an offering of our common stock.

I’ll now turn the call over to Tony, who is going to take us through the numbers.

Anthony Puleo

Total sales in the first quarter of 2008 were $111.3 million as compared to total sales of $121.8 million in the first quarter of 2007. Bluegreen resort sales increased by 4% compared to the first quarter of 2007. As depicted in the supplemental segment financial data table in our press release, gross resort sales rose by 9%, excluding the impact of estimate uncollectible DOI notes receivable and the gain on the sale of notes receivable which were included in sales due to the application of statement of financial accounting standards #152.

Sales to existing owners rose 30% in Q1 2008 and comprised approximately 46% of resort sales in the first quarter, as compared to 38% in the first quarter of 2007. We also benefited from an 8% system wide price increase that went into effect in January 2008; that, based on current indications, is being well tolerated by consumers.

On a consolidate basis net income for the first quarter of 2008 declined by approximately $3.9 million, or $0.13 per share, compared to the same period last year. This decline was the result of approximately $0.10 per diluted share, attributable to lower sales and profits at Bluegreen Communities and we also incurred a charge of approximately $0.05 per diluted share, related to the impairment of retained interest in notes receivable sold, which has been reflected as a reduction in interest income. This charge was based on increased discount rates used to value our retained interest in response to current interest rates in the securitization market, as well as, in some cases, higher estimated defaults.

Resorts cost of sales as a percentage of gross resort sales for the first quarter of 2008, again, prior to the impact of estimated uncollectible DOI notes receivable and the gain on sales of notes receivable remained stable at 21%, compared to the same period last year.

Resorts field operating profit, which is defined as operating profit prior to the allocation of corporate overhead, interest income, other income and interest expense, income taxes and minority interest was $5.8 million or 6% of resort sales for the first quarter of 2008, down from $7.7 million or 9% of sales in the first quarter of 2007. This decline was due primarily to the impact of $16.4 million of estimated uncollectible DOI notes receivable, as compared to $11.4 million in the first quarter of 2007.

Delinquencies over 30 days in our entire service notes receivable portfolio of DOI notes at March 31, 2008, were 3.9%, down from 4.5% at December 31, 2007, which is consistent with historical patterns for the first quarter. Our April 2008 delinquencies were 3.8%. The average annual default rate for the 12 months ended March 31, 2008 was 7.9%, up from 7.3% for the 12 months ended March 31, ’07, but down from 8.5%, which we had realized back in 2004 and 2005.

We believe that our receivables continue to perform within our historical norms and we are continuing to closely monitor our portfolio in light of the current consumer economic environment.

Community sales declined $20.9 million in the first quarter of 2008, from $34.9 million in the first quarter of 2007. Sales in the 2007 first quarter included the recognition of $7.1 million in 2006 sales previously deferred, as the related properties did not receive final platting until the 2007 first quarter. No similar recognition occurred in the first quarter of 2008.

Bluegreen Communities continued to operate profitably, generating field operating profit of approximately $3,9 million, or 19% of community sales in the first quarter of 2008, compared to field operating profit of $8.8 million or 25% of sales in the same period last year.

The average sales price per home site realized at communities during the first quarter of 2008 was $83,973.00, compared to $82,532.00 in the same period last year. We believe that our ability to continue to realize retail-selling prices that generate consistent gross profit margins is a strong indicator of the validity of the book value of our communities’ inventories.

As of March 31, 2008, approximately $10.8 million and $4.2 million of communities’ sales and profits respectively were deferred under the percentage of completion method of accounting. It is expected that these amounts will be recognized in future periods, ratably with the development of the communities. These amounts compared to $13.2 million and $5.5 million of Bluegreen Communities sales and profits respectively, deferred at December 31, 2007; therefore net recognition in the first quarter of 2008 of revenues and profits previously deferred under the percentage and completion method of accounting totaled $2.4 million and $1.4 million respectively.

Our balance sheet at March 31, 2008, remained quite strong. At that date we had unrestricted cash of $75.4 million, down from $125.5 million at December 31, ’07, reflecting our repayment in full of $55 million of 10.5% senior secured notes, plus all accrued interest on March 31, 2008.

Our book value at quarter end was $12.37 per share, up from $12.34 per share at December 31, ’07 and we reported a debt to equity ratio of 0.95 to 1, an improvement from 1.03 to 1 at December 31, 2007, primarily reflecting the repayment of 10.5% senior secured notes.

Now I’ll turn it back over to John.

John Maloney

Thank you again for your participation and please feel free to contact myself or Tony Puleo if you have any additional questions.

Question-and-Answer Session

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