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Robert Trigaux

St. Joe shares deflated as short-seller argues developer's projects overvalued



watersoundst.joemauricerivenbark.jpgWake up and good morning. While St. Joe Co. takes the offensive against the oil exploration firms behind the BP gulf oil spill that has hurt St. Joe's Florida Panhandle development assets (like WaterSound, in photo by Maurice Rivenbark, St. Petersburg Times), the company suddenly finds itself on the defensive from a new attack.

St. Joe shares plunged Wednesday after noted short-seller David Einhorn (photo below), who profited from bets against Lehman Brothers Holdings Inc. in 2008, said the Florida real-estate firm must take "substantial" asset-impairment charges and that further building will drive the stock price to zero. At Wednesday end of trading, St. Joe shares had dropped just under 10 percent to $22.16.

Why has Einhorn's short-selling pitch got legs? After all, Einhorn runs hedge-fund operator Greenlight Capital Inc. and it was obvious in his remarks made at the Value Investing Congress in New York that the more he can drive down St. Joe's stock price, the more he will profit. Here's more coverage from Forbes.

david_einhorngreenlightcapitalshortsellerhedgefund.jpgSo is this just another well scripted attack on a valuable but vulnerable real estate development company by a short seller who will make big bucks badmouthing St. Joe and profiting from the falling stock price? Or is this possibly an example of a "de-blustering" of St. Joe's impressive marketing campaign of trying to refashion the Redneck Riviera into some upscale, second-home playground of the rich? St. Petersburg Times reporter Kris Hundley raised questions in this story about the development strains at St. Joe back in 2006, just before the recession struck. 

Speaking before an obviously pro-Einhorn audience, the short seller's talk was met with vigorous applause. Einhorn supplemented his pitch against St. Joe with a 139-slide presentation that combined not just the usual balance sheets and quotes from annual reports, but photos and videos Einhorn's team took of St. Joe's properties, showing empty lots, abandoned houses and vacant retail storefronts. St. Joe’s RiverTown community (south of Jacksonville on the St. Johns River) is a "moonscape" and WaterSound (sown above, an upscale beachfront community on the Panhandle) is empty, he says. Here's more from Bloomberg's coverage and this Wall Street Journal story.

The biggest problem, Einhorn says, is that St. Joe’s Florida real estate assets are worth nowhere near the $745 million the company says they are. Rather than the $20-to-$28 range in which St. Joe's shares have been trading, Mr. Einhorn thinks that, at best, the company is worth $7 to $10 a share. And if the company's management doesn't change course, he argues it could eventually fall to zero.

St. Joe finally offered this response to Einhorn's argument and to the market's pummeling of its shares on Wednesday:

"It is important to understand that an investment in St. Joe is an investment in a company that has a virtually debt free balance sheet and owns approximately 577,000 acres of land concentrated primarily in Northwest Florida, famous for its miles of sugar white sand beaches. These land holdings include over 400,000 acres within 15 miles of the Gulf of Mexico and approximately 300,000 acres within 40 miles of the new Northwest Florida Beaches International Airport.  We continue to focus on the execution of our strategic plan in order to maximize the value of our assets."

A little perspective. St. Joe has a long, long history in Florida (and in state politics) going back to the DuPont family and the Depression era. Lately, St. Joe's involved in yet another controversy over its role in providing land, and more, for the infamous "Taj Mahal" courthouse building in Tallahassee. Read more from St. Petersburg Times reporter Lucy Morgan here and columnist Howard Troxler here.

-- Robert Trigaux, Times Business Columnist


[Last modified: Thursday, October 14, 2010 7:52am]


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