What Would Einhorn Think About David Winters Consolidated Tomoka Holding ?
For most of the life of Wintergreen Winters has owned a large percentage of the outstanding shares of a Florida land developer called Consolidated Tomoka Land Holdings (CTO). Obviously given the time period in question (housing and property market collapse) that investment has not worked out very well so far. Wintergreen was buying shares of CTO at prices as high as $65 which is well north of the current $26 stock price so Winters is well underwater at current prices but doesn’t appear to have thrown in the towel.
Consolidated-Tomoka is involved with converting agricultural land to income property, primarily in Florida, and develops and manages commercial parcels. The company's chief asset is about 12,000 acres of unimproved land in Daytona. It also runs two golf courses in Volusia and Highlands Counties in Florida. Sound familiar ? Different part of Florida, but very similar to St. Joe as both companies have a lot of land which currently isn’t worth all that much but might be if developed intelligently.
Winters has taken an activist position as he owns 26% of the company through Wintergreen which has resulted in a new Chairman and five new independent board directors.
In an Interview with Morningstar Winters had this to say about CTO:
4. The fund is also among the few funds with any sort of
meaningful investment in Consolidated-Tomoka Land, a company
of which you altogether own more than 25%. What’s there, and
what extra responsibility, privilege, or challenge comes with
being such a large minority shareholder?
We are attracted to undervalued assets. Consolidated-Tomoka (CTO)
owns approximately 11,000 acres of land in Daytona Beach, Fla., which
is on their books at 1902 prices, and the company has a portfolio of
income properties that meets most of its current operational costs.
We take our fi duciary responsibly very seriously, both with
Consolidated-Tomoka and with our entire investment portfolio.
We often have an open dialogue with the management of portfolio
companies who generally value feedback from investors. Usually,
this is cordial conversation, but in this instance, it has at times been
diffi cult. Wintergreen ran a proxy contest last year in support of
improved corporate governance and a more independent board. A
majority of shareholders joined us and supported these objectives. We
view Consolidated as a company with the opportunity to write its own future, and as a major shareholder, we want to make sure that future
is well thought out and in the long-term interests of its shareholders.
Florida’s population has grown dramatically in the last couple of
decades. Daytona is one of the very few if not the only city on the
east coast of Florida with thousands of contiguous acres of
undeveloped land that abuts against the city’s announced plan for
future development. This is a prime opportunity, and one that cannot
be duplicated anywhere else.
Go back in time and imagine you owned an 11,000-acre parcel of
undeveloped land just beyond the developed portion of a city nearby
your hometown. If you still owned a signifi cant portion of those 11,000
acres, that land could be worth a fortune today, as the city most likely
will have grown into the land. This is the opportunity Consolidated
Tomoka and its owners have in Daytona because unlike many other
towns, Daytona still has the ability to grow into this open land. The
presence of major state roads nearby the company’s land only adds to
its long-term appeal.
Wintergreen’s investors own more than 25% of this land just beyond
the current development boundary of Daytona, a city that is well
poised for growth when the real estate market turns around. Daytona
is receptive to growth and development, and this huge tract of land is
the only viable option for the city. Consolidated is in a great position
to help design a spectacular future for Daytona and participate on the
upside of this growth. Many towns in Florida have already experienced
major growth, just as any number of towns in other states have grown
and spread out beyond their former development footprint from when
we were kids.
With the sharp downturn in the Florida real estate market, now is the
time for Consolidated-Tomoka to develop a long-term design plan and
use the economic slowdown to its advantage. In a number of years, we
believe we will be able to look back and say that, just like the towns
many of us grew up in, Daytona has had spectacular growth. With the
benefi t of careful development design and rational planning, you can
well imagine what can be done to maximize the value of this companyowned
land for all shareholders.
During the last few years we have and will continue to express
our views to management through letters, 13-d fi lings, and, when
necessary, proxy contests. We have had some success and believe there is much more value in these 11,000 acres to be unlocked for
shareholders. Our duty here and in other investments is to think and act
like long-term owners of a portion of the business.
So while both JOE and CTO are Florida companies with significant land available for development there is a difference in where the land is. JOE has land close to the ocean that will hopefully have value some day. CTO has land that is right beside a pretty significant city that should over time expand again once the housing market returns to something more normal. CTO seems to have land that will eventually have to be developed as Florida’s population grows. JOE on the other hand needs to have an entire area of Florida become more popular to tourists, residents and retirees. JOE seems more like a situation where several things have to happen for an investment to work out well. CTO seems more like it will work out well over a long enough period of time.
My take is that I have no business investing in either company. I think you had better have some serious local knowledge before you are investing in real estate.
With respect to CTO, I’m sure Winters knows very well which direction Daytona Beach is likely to expand and also the value of CTO’s land should it be converted to better uses. But I have no idea so I will take a pass. It would be interesting to know if Einhorn looked at this one as well.