, founder of hedge fund Greenlight Capital, has moved markets
with his powerful presentations on stocks he has decided to short
and reaped sizable gains. The companies he targets typically have
to respond to accusations leveled at them and after some time has
passed, it becomes clearer whether Einhorn was right in his
assessment. Perhaps most famous are his short positions in
), The St. Joe Company (
) and Green Mountain (
) (read about his Green Mountain short
Einhorn revealed his firm's short position in St. Joe at the 2007
Ira Sohn Conference and presented an updated, 139-page thesis at
the 2010 Value Investors Conference. Founded in 1936, St. Joe is
the second-largest land owner in Florida, owning approximately
567,000 acres of land primarily in Northwest Florida it is either
developing or using to grow and sell timber.
The company is also famous for having Fairholme investor Bruce
Berkowitz as owner of 27.47% of its outstanding shares, which
amounts to 7.1% of his total portfolio.
St. Joe bought most of its land decades ago at a very low price.
In his presentation, Einhorn points out that St. Joe began to
become an active land developer in 1997 with the hiring of an
imaginative former Disney creative developer.
"So what has happened during the transformation, or at least the
first 10 years of it?" Einhorn asked in his presentation. "Joe
has made $70 million a year in pre-tax profits, more than all of
it has come from selling low-basis rural land and timber. The
development of real estate into higher-value uses through into
and through the real estate boom and other items has not
generated a positive return."
Then-CEO Peter Rummell in 2007 billed the vision for a stretch of
its beach as "a national destination with the same kind of
recognition as Nantucket, Hilton Head Island or Napa."
Einhorn objected to the depiction, arguing instead that the
company peaked during the real estate boom and that its best and
most profitable days were behind it. For instance, in 1999 it
owned 1,086,780 acres and by Dec. 31, 2009, it had sold down to
In addition, he pointed out that Florida's home prices fell more
dramatically than the greater U.S., declining in 2010 to 60% of
their value in 2007. In one development, SummerCamp Beach, the
company sold lots for an average of $880,000 in 2006; in 2010,
its average price for lots sold was $331,000. The total
investment in selected real estate, he said, represented
approximately 86% of Joe's real estate carrying value.
St. Joe's write-downs since the decline, however, were only
modest, he noted.
Einhorn concluded that:
� Further development is likely to destroy
� Joe's highest and best use is to return to its
pre-Rummell roots as a Rural Land company
� The rural land is worth $650-950 million or $7-10
� There is a modest additional value for the 41,000
He believed the company was stuck: "It can't build, it can't sell
and it can't generate value to cover its operating costs," he
St. Joe's stock price peaked at an all-time high of around $85 a
share in 2005, and declined to about $26 to open 2010 as the real
estate crisis ensued. If Einhorn began shorting the stock in
2006, his original price was approximately in the range of $67
and $43 that year.
By the end of the day that Einhorn gave his presentation on St.
Joe, shares plunged around 11% to $21.98 per share.
St. Joe offered its third quarter financial results on Nov. 1,
2012, showing some improvements. St. Joe's revenue increased year
over year to $55.9 million from $26.7 million; net income
increased year over year to $15.3 million, from a net loss of
$2.4 million. (See St. Joe's 10-year financials here.)
The improvements were the effect of the number of residential
units sold increasing to 58 units from 40 units in the third
quarter last year. Combined with higher prices, revenue in its
residential real estate sales increased 146%. It also sold $18.3
million worth of rural land.
In the first nine months of 2012, Joe realized year-over-year
revenue increases of 93.3% in residential real estate, 390.5% in
commercial real estate, 606% in rural land, 13.6% in resort and
club revenues, and 40% in "other." Only its resort and club
revenue declined, falling 63.6%.
The company's residential sales consisted of 56 homesites and
only two actual homes, however, in the third quarter.
"We believe our residential sales are showing signs of recovery
in many of our Northwest Florida projects. However, with the U.S.
and Florida economies still battling the adverse effects of home
foreclosures, restrictive credit, significant inventories of
unsold homes and weak economic conditions, the timing of a
sustainable recovery to all our residential projects remains
uncertain," the company said in its 10-K.
Einhorn last commented publicly on St. Joe in his first quarter
2012 investor letter. In the letter, he noted that he was correct
about the need for the company to recognize impairments in its
residential real estate as the company took $374 million in total
impairment, an approximately 80% write-down of its impaired
properties and almost 40% of its book equity. The amount still
needed to be greater though, he believed.
Year to date, Joe's stock price has rallied 55%. Einhorn said in
his May letter that, "We remain skeptical that there is a path
for any management team to create much value here," but has not
publicly disclosed since whether he is still shorting the
See David Einhorn's portfolio here. Also check out the
Undervalued Stocks, Top Growth Companies and High Yield stocks of
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