The shares sold were held in an account that was managed by the Fairholme Fund at the direction of the client. A total of three sales were made on May 7, 8 and 9, at prices of $18.06, $17.60 and $17.18, respectively.
Days before the transaction, on May 3, St. Joe announced its first quarter results. The company reported a net loss of $0.9 million, compared to net income of $14.1 million for the first quarter of 2011. Revenue declined to $30.5 million, compared to $73.4 million the previous year, as the company had a one-time timber deed transaction in the first quarter of 2011 that boosted revenues by $54.5 million.
Berkowitz spoke about his St. Joe investment with Bloomberg on February 13. “St. Joe is really about real estate. In recessions real estate is worth very little. When it’s in demand, it’s worth a lot more,” he said.
A deeper-than-expected downturn in Florida real estate has plagued the company, which has approximately 573,000 acres of land primarily in Northwest, with approximately 70 percent within 15 miles of the coast of the Gulf of Mexico. Incorporated in 1936, St. Joe acquired most of the land decades ago at very low cost. It has sought to increase the value of its assets by enhancing it for better uses.
In 2011, St. Joe reassessed the carrying value of its real estate which led to non-cash impairment charges of $377.3 million and a full-year net loss of $330.3 million, compared to a net loss of $35.9 million for 2010. In January 2012, the company adopted a new real estate investment strategy to reduce capital outlays and employ new risk-adjusted investment return criteria for evaluating its properties and future investments in the properties. Consequently it will spend less on infrastructure, amenities and master-planned community development, as well as reposition some of its assets to sell in order to preserve capital, improve cash flow and reduce risk for the remainder of the real estate downturn.
Berkowitz tried in 2011 to replace all of the members of St. Joe’s board with nominees from the Fairholme Fund, which the company opposed, saying it was trying to take control of the company without paying shareholders. A month later, in February, St. Joe added four of Fairholme’s candidates to its board, including Bruce Berkowitz.
Berkowitz initiated his position in St. Joe in the fourth quarter of 2007 when the share price was approximately $31. He has lost approximately 38 percent on the investment so far, based on the average price he paid for all of his shares.
The long-term investor still seemed satisfied with the St. Joe investment regardless of macroeconomic conditions when he reiterated some of the main points of his thesis on Bloomberg in February.
“I’m very proud of what’s going on at St. Joe in that the bleeding has stopped,” he said. “The company is now structured for whatever the future may be in real estate and will be ready to take advantage of the tail winds that will eventually come. So, it’s a lot of land in the last sparse spot in Florida. St. Joe is nothing more than the history of real estate development in the United States.”
David Einhorn has fared better so far with St. Joe. He shorted the company in 2010, based on a thesis he explained in a 160-slide presentation at the Value Investor Congress that year.
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