This one is just too good to be true.
Breaking headlines today about David Einhorn at the Value Investing Congress unveiling his newest short position St. Joe (JOE, Financial). St. Joe of course is a large holding of Bruce Berkowitz of Fairholme Capital.
His basic thesis is that:
1) Current property developments are ghost towns
2) Assets are overvalued on the balance sheet and need to be written down
3) Company is worth $7 to $10 per share
4) Management should sell the company immediately to take advantage of overpriced stock
Interestingly there is already information about Einhorn’s thesis on the internet. I found the following at the excellent website http://stocksbelowncav.blogspot which Einhorn wrote:
“We were happy to hear from David Einhorn regarding our recent St. Joes (JOE) piece. David thought we were incomplete in our representation of the analysis he presented at the May Ira Sohn Research Conference. We invited him to lay out his case, which is presented in this post.
While we respectfully disagree with his conclusion, and he obviously disagrees with ours, we find this type of debate very healthy. We happen to be long JOE, while Einhorn's firm, Greenlight Capital has a short position.
David Einhorn, Greenlight Capital on St. Joes Corp.
The per acre analyses used by most St. Joe bulls exclude selling expenses and taxes. I believe that the equivalent gross value to the $9,000 an acre used in your analysis is the equivalent of $18,000 an acre, when taking expenses and taxes into account.
As it was, I did not quantify any amount of swampland at the Ira Sohn conference. I simply noted that some of the land is swampland. The weather is much worse than South Florida (just as hot in the summer and cooler in the winter), there are a lot of mosquitoes, there is not a lot to do, and the demographics are poor. I noted that I thought St. Joe overplayed the value of land within ten miles of the ocean and noted that I thought that vacationers would prefer to be "on the ocean." More than a mile is too far for many families to walk to the beach. Finally, I thought the airport development is the type of story often seen in promotional stocks designed to buy years of time to encourage the market to ignore current financial results. The current airport does not operate near capacity. Airports in Jacksonville an Ft. Myers did not spur a lot of development next to their airports and it is odd the St. Joe seems to believe that a lot of people will want to live near the airport, as if that is a residential attraction.
As I pointed out in my speech, since 2001, St. Joe has sold 268,000 acres at an average price of under $2,000 an acre. Since my speech, St. Joe announced another quarter where they sold over 30,000 additional acres at $1,500 an acre. As such, I don't see that it is very challenging to determine a value for most of St. Joe's land. Assuming they haven't sold the most salable stuff first, it appears that undeveloped land is worth on average sub $2,000 an acre before expenses.
I believe that about 680,000 of the remaining 739,000 acres are similarly undeveloped. Assuming St. Joe has no un-salable tracts of swampland and all the undeveloped land could be sold for $2,000 an acre, it would be worth $1.36 billion gross or about $700 million after selling expenses and taxes.
St Joe has just under 20,000 acres in development (some of which has already been sold). They have an additional 21,000 acres "In Pre-Development", meaning they have land use entitlements, but they are still evaluating the development or need additional permits. They have another 10,000 acres they are planning to entitle.
The developed projects have a book value of $800 million. St. Joe is not making good margins on selling developed property. Residential and commercial land sales have not covered its overhead in any quarter since 2005, when it was still in the homebuilding business. St. Joe is one of very few companies that has spent large amounts on residential development and has not taken any impairment in the current environment. To give St. Joe the benefit of the doubt, let's say the developments could be worth 1.5x book or $1.2 billion.
On that analysis St. Joe is worth $1.9 billion. Subtract $400 million of debt, leaves $1.5 billion of equity or $20 per share. I believe that adding in the time value of money would take this analysis down to the $15 number I used at the conference.
Regards,
de”
Of course Einhorn’s position is the polar opposite of acclaimed investor Berkowitz who owns a big chunk of JOE. Here is his bullish case from a recent Forbes interview:
“Forbes: Now on the real estate side, do you still have St. Joe?
Berkowitz: Yes, we're the largest owner of St. Joe in Florida. That was, again, another big misperception. First of all, everyone now believes real estate's going to zero. And everybody believes that the almost 600,000 acres of St. Joe land in the panhandle, is just mosquito infested swamp lands. And no one's really spent the time to look at the 140 miles of coastline along the gulf, and the bays, and the inter-coastal waterways, and of the sand.
It's a beautiful ecosystem. You got the seasons there. I thought that was, of course, the part of Florida that was supposed to first be developed before Fort Lauderdale and Boca by the DuPonts. But it's the last big piece of Florida. And of course, there's a new international airport being built right in the middle of their land which opens up next spring, summer. So that's what the area has missed. It's been, you know, you had to take a plane, a train and a car to get to some of these beautiful spots. Now you'll be, you know, you'll be able to fly in and be within 10, 15 miles of where you need to go.”
Wow. How two smart guys can reach such different conclusions is amazing. I’ll put this in the too hard pile and watch as it plays out.
Breaking headlines today about David Einhorn at the Value Investing Congress unveiling his newest short position St. Joe (JOE, Financial). St. Joe of course is a large holding of Bruce Berkowitz of Fairholme Capital.
His basic thesis is that:
1) Current property developments are ghost towns
2) Assets are overvalued on the balance sheet and need to be written down
3) Company is worth $7 to $10 per share
4) Management should sell the company immediately to take advantage of overpriced stock
Interestingly there is already information about Einhorn’s thesis on the internet. I found the following at the excellent website http://stocksbelowncav.blogspot which Einhorn wrote:
“We were happy to hear from David Einhorn regarding our recent St. Joes (JOE) piece. David thought we were incomplete in our representation of the analysis he presented at the May Ira Sohn Research Conference. We invited him to lay out his case, which is presented in this post.
While we respectfully disagree with his conclusion, and he obviously disagrees with ours, we find this type of debate very healthy. We happen to be long JOE, while Einhorn's firm, Greenlight Capital has a short position.
David Einhorn, Greenlight Capital on St. Joes Corp.
The per acre analyses used by most St. Joe bulls exclude selling expenses and taxes. I believe that the equivalent gross value to the $9,000 an acre used in your analysis is the equivalent of $18,000 an acre, when taking expenses and taxes into account.
As it was, I did not quantify any amount of swampland at the Ira Sohn conference. I simply noted that some of the land is swampland. The weather is much worse than South Florida (just as hot in the summer and cooler in the winter), there are a lot of mosquitoes, there is not a lot to do, and the demographics are poor. I noted that I thought St. Joe overplayed the value of land within ten miles of the ocean and noted that I thought that vacationers would prefer to be "on the ocean." More than a mile is too far for many families to walk to the beach. Finally, I thought the airport development is the type of story often seen in promotional stocks designed to buy years of time to encourage the market to ignore current financial results. The current airport does not operate near capacity. Airports in Jacksonville an Ft. Myers did not spur a lot of development next to their airports and it is odd the St. Joe seems to believe that a lot of people will want to live near the airport, as if that is a residential attraction.
As I pointed out in my speech, since 2001, St. Joe has sold 268,000 acres at an average price of under $2,000 an acre. Since my speech, St. Joe announced another quarter where they sold over 30,000 additional acres at $1,500 an acre. As such, I don't see that it is very challenging to determine a value for most of St. Joe's land. Assuming they haven't sold the most salable stuff first, it appears that undeveloped land is worth on average sub $2,000 an acre before expenses.
I believe that about 680,000 of the remaining 739,000 acres are similarly undeveloped. Assuming St. Joe has no un-salable tracts of swampland and all the undeveloped land could be sold for $2,000 an acre, it would be worth $1.36 billion gross or about $700 million after selling expenses and taxes.
St Joe has just under 20,000 acres in development (some of which has already been sold). They have an additional 21,000 acres "In Pre-Development", meaning they have land use entitlements, but they are still evaluating the development or need additional permits. They have another 10,000 acres they are planning to entitle.
The developed projects have a book value of $800 million. St. Joe is not making good margins on selling developed property. Residential and commercial land sales have not covered its overhead in any quarter since 2005, when it was still in the homebuilding business. St. Joe is one of very few companies that has spent large amounts on residential development and has not taken any impairment in the current environment. To give St. Joe the benefit of the doubt, let's say the developments could be worth 1.5x book or $1.2 billion.
On that analysis St. Joe is worth $1.9 billion. Subtract $400 million of debt, leaves $1.5 billion of equity or $20 per share. I believe that adding in the time value of money would take this analysis down to the $15 number I used at the conference.
Regards,
de”
Of course Einhorn’s position is the polar opposite of acclaimed investor Berkowitz who owns a big chunk of JOE. Here is his bullish case from a recent Forbes interview:
“Forbes: Now on the real estate side, do you still have St. Joe?
Berkowitz: Yes, we're the largest owner of St. Joe in Florida. That was, again, another big misperception. First of all, everyone now believes real estate's going to zero. And everybody believes that the almost 600,000 acres of St. Joe land in the panhandle, is just mosquito infested swamp lands. And no one's really spent the time to look at the 140 miles of coastline along the gulf, and the bays, and the inter-coastal waterways, and of the sand.
It's a beautiful ecosystem. You got the seasons there. I thought that was, of course, the part of Florida that was supposed to first be developed before Fort Lauderdale and Boca by the DuPonts. But it's the last big piece of Florida. And of course, there's a new international airport being built right in the middle of their land which opens up next spring, summer. So that's what the area has missed. It's been, you know, you had to take a plane, a train and a car to get to some of these beautiful spots. Now you'll be, you know, you'll be able to fly in and be within 10, 15 miles of where you need to go.”
Wow. How two smart guys can reach such different conclusions is amazing. I’ll put this in the too hard pile and watch as it plays out.
