Berkowitz Responds to Einhorn

[Parsad]

Bruce Berkowitz had a nice response to Einhorn regarding St. Joe.  Cheers!

 

http://www.businessinsider.com/bruce-berkowitz-einhorns-shorting-it-i-would-buy-the-entire-company-if-i-could-2010-10#ixzz12RvbBbWb

[Matson125]

This is the best part:

So now we know why Berkowitz never responded to Einhorn.

 

 

"Why would I want to talk to him?" Berkowitz told Reuters.

 

 

"If someone wants to lower the price of a product I'm buying, I'm okay with that. We're long-term investors here."

 

Cheers

 

Michael

 

 

 

Read more: http://www.businessinsider.com/bruce-berkowitz-einhorns-shorting-it-i-would-buy-the-entire-company-if-i-could-2010-10#ixzz12SCZPxfq

[Guest Bronco]

Not sure, but it seems BB is close to maxing out on what he can purchase.

 

Since he really can't act as a Lampert or Biglari and take over the company, I am siding with Einhorn on this one. 

 

There are some that see real estate not for what exists but for its potential.  My beloved Loews started this way when theatres were bought for the properties - some converted to hotels. 

 

Don't know how BB will pull this off without owning the company.  In the next 3 - 5 years I wouldn't expect a lot of favorable monetization from JOE. 

 

That being said, who's to say that BP doesn't monetize this company with truckloads of cash.  It is a new America.

 

Just some thoughts off the cuff - I haven't researched this in any detail. 

[Buffetteer]

Thanks Parsad.

 

Gotta love Bruce, very smart guy.

Tried to find the story on Reuters but couldn't.

[twacowfca]

Not sure, but it seems BB is close to maxing out on what he can purchase.

 

Since he really can't act as a Lampert or Biglari and take over the company, I am siding with Einhorn on this one. 

 

There are some that see real estate not for what exists but for its potential.  My beloved Loews started this way when theatres were bought for the properties - some converted to hotels. 

 

Don't know how BB will pull this off without owning the company.  In the next 3 - 5 years I wouldn't expect a lot of favorable monetization from JOE. 

 

That being said, who's to say that BP doesn't monetize this company with truckloads of cash.  It is a new America.

 

Just some thoughts off the cuff - I haven't researched this in any detail. 

 

 

If we build it they will come.  ::)

[opihiman2]

Bruce probably has a love affair with St Joe because he's familiar with the Florida panhandle (being that he's based in Miami) and is comfortable with the real estate dynamics there.  I liken it to investing in a brand or good that you use and like, e.g. Steak N Shake, and can see some value in.  However, I have seen what real estate busts will do to localized markets (i.e. Hawaii in the 90's) even in desirable, tropical beachfront areas: they can take a long time to recover.  The housing market in Hawaii recovered after 16 years of little growth.  How would St Joe fare in that kind of environment?  I think it's a value trap.

[Guest dealraker]

I've followed Bruce Berkowitz since he was profiled in OID in the mid-90's and bought his fund (I don't buy funds!) at its inception.  Still, I wouldn't buy a corporation that invested in Florida Panhandle land personally if it valued that land anywhere above $1000 per acre.  I've been there, seen it, and thought to myself, "This is NOT, and I mean N-O-T, where I want to be."  Bugs, cold in the winter, hot in the summer, no breeze and more.  Lots of publicly accessible waterfront with development often well back from the beach.  But vacant land is everywhere, everywhere and more everywhere.  Is it worth several thousand an acre?  How in hell?!!!

[twacowfca]

Bruce probably has a love affair with St Joe because he's familiar with the Florida panhandle (being that he's based in Miami) and is comfortable with the real estate dynamics there.  I liken it to investing in a brand or good that you use and like, e.g. Steak N Shake, and can see some value in.  However, I have seen what real estate busts will do to localized markets (i.e. Hawaii in the 90's) even in desirable, tropical beachfront areas: they can take a long time to recover.  The housing market in Hawaii recovered after 16 years of little growth.  How would St Joe fare in that kind of environment?  I think it's a value trap.

 

 

That part of the panhandle is about as far from Miami as West Virginia is from Chicago. 

[txlaw]

Interesting.  So does this mean that he has changed his filing status to active investor so that he can push the company to let him buy more?  What are the limits on the percentage a mutual fund can own of a company?

 

I'm a huge Berkowitz fan, but I've always been wary about the JOE investment.  It does seem like it really could take decades to work out, if at all.

 

For what it's worth, I have a friend who's from Alabama and who has been to the Redneck Riviera, and he does indeed believe it to have some of the best beaches in the nation (other than Hawaii, of course).  But you also have hurricanes, swamps, and bugs to deal with too -- not to mention the rednecks.

[BargainValueHunter]

hard to see how a company that owns a ton of land with no debt could go to zero.  It's basically an exercise in land valuation.  Book value is $10, and much of the half million acres of land they own is held at absurdly low book values - most of it was acquired in the 1930's and '40's

[falconof880]

There was in intelligent reply at http://seekingalpha.com/article/229909/comments  quoted below.

 

Your thoughts??

 

 

 

 

After reading Einhorn’s presentation, I have a couple of points to make.

 

A) What Einhorn is implicitly telling us how much JOE is worth?

 

Einhorn’s presentation is focused on total acreage of 6,950 (= 4170 (RiverTown) + 762 (SummerCamp) + 2020 (WindMark) see P106) which BTW, is only 1.2% (= (4170 (RiverTown) + 762 (SummerCamp) + 2020 (WindMark) )/ 577,000 ) of JOE’s total land holding. On P122, the total what-we-can-see value is 38.7M. If we take 38.7M and divided it by the total acreage of 6952 we get $5566 per acreage. Please keep this number $5566 in mind as I will refer to it later in my analysis. Also remember that $5566 is derived from Einhorn’s presentation. I did not invent it.

 

BTW, Einhorn only included WindMark II on P122. This is because he used the number from P112. BTW WindMark II is only about half of the total WindMark, see P104. And the the source of P40,67,71, & 89 are from 10-K not from 10-Q.

 

According to P30, that JOE has 536,000 of Timberland or Rural Land. However, it happens to be that most of them are within 15miles from the beach. If you take a look at P6 of the latest investor Presentation files.shareholder.com/... you will also see miles of beaches and water front land are still in JOEs holding. Want to know how much a piece of beachfront can be sold at? See P73 of Einhorn’s presentation.

 

Let’s say we use the $5566 per acreage (derived from Einhorn’s total what-we-can-see number on P122) times it by 536,000, we get 2.98Billion. Divide 2.98Billion by 92Million shares, we get $32.3 per share.

 

In conclusion, Even using Einhorn’s worse numbers we get a per share price of JOE at $32.3

 

B) About Impairment.

 

Let’s say I agree with Einhorn that we should write down say $242Million (= 280M – 38M) according to P122. In this case, shouldn’t we also update the value of the rest of the land holdings on JOE’s book?

 

Let’s say we again use the $5566 per acreage (derived from Einhorn’s total what-we-can-see number on P122) times it by 536,000, we get 2.98Billion which is more than three times higher then the current book value.

 

In addition, impairment is just an accounting technique which does not affect JOE cash flow wise.

 

C) Burning through cash?

 

JOE is not burning through cash. In fact, JOE’s free cash flows for TTM, 09, 08 are $18M, $48M, $46M respectively. As Bruce Berkowitz puts it: “You can only spent cash.”

 

In fact, according to Morningstar, “St. Joe reduced its employee base by nearly 90% since real estate's peak in late 2005, exiting noncore businesses in hospitality services, homebuilding, construction, and development. The firm has also shrunk its regional footprint, closing or selling operations in ancillary downstate areas like Tampa and Orlando. St. Joe now boasts a lean staff of just 140 and an intense singular focus on developing its major regional land holdings, a major positive development compared to its prior, more diverse endeavors.”

 

D) About the history of JOE’s land sales

 

The land JOE sold during 2000-2009 was not strategic to JOE’s long term objectives. We should not simply use the price on P28 to calculate the rest of JOE’s land holding.

 

Einhorn spent very little of his presentation on 98.8% of JOE’s land holding. He simply assumes the price to be $1818 per acre according to P28.

 

On the other hand, he went to great detail to talk about 1.2% of the JOE’s land holding. Yet he evaluated them at a much higher price of $5566 per acre. Once again as I stated above $5566 is Einhorn’s price. I did not invent it (see A) above).

 

I just use it to make a point. I use Einhorn’s $5566 to time 536,000, to get 2.98Billion. So, you see Einhorn is contradicting himself.

 

If you really believe that the JOE sold all its best land at $1818, you can go to the map on P6 in files.shareholder.com/... to see for yourself and estimate the miles of beachfront land for yourself. In fact, what left is JOE’s prime real estate.

 

If you really believe that the land on the map is just Timberland and Rural Land, you can go to the map on P11 in files.shareholder.com/.... Ask yourself why people are building roads in the midst of every piece of JOE’s land.

 

E) Conclusion

 

Over all I don’t think Einhorn did a complete job on evaluating the company. After - as he claimed - looking into the matter for the pass six years, one would expect he came up with a detailed, complete section by section evaluation of JOE’s holding. In stead he just focused on 1.2% (= (4170 (RiverTown) + 762 (SummerCamp) + 2020 (WindMark) )/ 577,000 ) of JOE’s land. I am wondering if Einhorn is not as intelligent as we think he is or Einhorn intended for something else.

 

 

Good lucking in investing!

 

gigakushi@yahoo.com

[jjsto]

Well, I would consider his investment in ACF to be "active."  I looked at JOE briefly a long time ago and quickly filed it in the "too complicated" heading.  That Einhorn presentation was interesting.  It is pretty rare to have two investors using "value" techniques arrive at such divergent conclusions.  Even if BB is right that would still be a big red flag for me.  At this point it seems like BB's position will either be a "value trap", or take 5+ years to start seeing returns.  But, I really have no idea.  I much prefer situations where most people agree on an approximate value, but the stock is cheap for other reasons.  Just my .02

[opihiman2]

Bruce probably has a love affair with St Joe because he's familiar with the Florida panhandle (being that he's based in Miami) and is comfortable with the real estate dynamics there.  I liken it to investing in a brand or good that you use and like, e.g. Steak N Shake, and can see some value in.  However, I have seen what real estate busts will do to localized markets (i.e. Hawaii in the 90's) even in desirable, tropical beachfront areas: they can take a long time to recover.  The housing market in Hawaii recovered after 16 years of little growth.  How would St Joe fare in that kind of environment?  I think it's a value trap.

 

 

That part of the panhandle is about as far from Miami as West Virginia is from Chicago. 

 

Yes, I know--and they're bordering two different oceans.  Let me clarify, I'm ASSUMING he is familiar with that area being that it's his home state and the distance isn't much different than northern and southern California.  I'm sure he's been to that part of the panhandle enough to be familiar with the real estate market and understand its dynamics.  I've also read that Bruce has a house in St Petersburg?  Could be why I made the earlier assumption.

[philassor]

Well, I would consider his investment in ACF to be "active."  I looked at JOE briefly a long time ago and quickly filed it in the "too complicated" heading.  That Einhorn presentation was interesting.  It is pretty rare to have two investors using "value" techniques arrive at such divergent conclusions.  Even if BB is right that would still be a big red flag for me.  At this point it seems like BB's position will either be a "value trap", or take 5+ years to start seeing returns.  But, I really have no idea.  I much prefer situations where most people agree on an approximate value, but the stock is cheap for other reasons.  Just my .02

[philassor]

Well, I would consider his investment in ACF to be "active."  I looked at JOE briefly a long time ago and quickly filed it in the "too complicated" heading.  That Einhorn presentation was interesting.  It is pretty rare to have two investors using "value" techniques arrive at such divergent conclusions.  Even if BB is right that would still be a big red flag for me.  At this point it seems like BB's position will either be a "value trap", or take 5+ years to start seeing returns.  But, I really have no idea.  I much prefer situations where most people agree on an approximate value, but the stock is cheap for other reasons.  Just my .02

 

 

Same here, I also looked at that investment a while ago (got the idea from Martin Whitman) but thankfully it did not make it in my top 10 best ideas and I discarded it. 

 

I happen to live in Florida and I have seen it boom beautifully and crash even more spectacularly. I live in the " desirable" segment of the state (South Florida) and the real estate debacle is much worse here than it is nationwide to put it mildly.  I think the remark by Opihiman2

about Hawaii's real estate in the 90s has validity here… It is going to take a long time in popular South Florida to recover.

 

As to the Panhandle, it's attraction is substantially inferior as the winters for example are a lot less appealing; if you fly from Tampa to Tallahassee  you will notice undeveloped land for  hundreds of miles along the panhandle. Will this land ever be exploited? undoubtedly; will it be soon? I bet you it will take decades therefore making St. Joe a probable value trap and bringing me to the Einhorn camp.

 

On a side note, I am not as enamored with Berkowitz as a few on this board are (yes I know his record); He is a "shameless imitator" as he himself puts it in one of his reports; nothing wrong with that,  most of us are. However when it comes to pure research and his ability to uncover undiscovered gems I have some reservations.

[BargainValueHunter]

It sounds like Mr. Berkowitz is keen to buy the whole dang company:

 

http://www.thestreet.com/story/10890674/1/berkowitz-to-einhorn-thank-you.html?cm_ven=GOOGLEN

 

Berkowitz says Fairholme has a standstill agreement with St. Joe, and isn't allowed to acquire any more shares without management's permission. However, he'd like to open discussions with the firm -- which is now valued just shy of $2 billion -- and "other parties" for a potential buyout.

  ;)

 

BTW, great board...hope I can add some value while I learn!

[stahleyp]

I don't know why Berkowitz didn't avoid any comment at all. I mean, if he weren't showing confidence, wouldn't that drop the price further?

[beerbaron]

I don't know why Berkowitz didn't avoid any comment at all. I mean, if he weren't showing confidence, wouldn't that drop the price further?

 

He can't buy more, so he might as well support the stock now.

 

BeerBaron

[txlaw]

That interview on TheStreet.com was great.  Check out this interview excerpt with Morningstar that Berkowitz did on JOE.  http://www.gurufocus.com/news.php?id=109470

 

It seems like he's really taking a decades long view on JOE and that the end game is to have JOE sold to a real estate family who will develop the area over the next half century.  When you take a long term view, it's really not so crazy to think that JOE could be worth quite a bit more than what it trades at.  I'm particularly intrigued by the fact that the deepwater port there is closer to the Panama Canal than Miami.  Obviously, the "as is" value of the property at this time of the real estate development cycle will be quite low.  

 

Einhorn has capitalized on the fact that JOE was already one of the most heavily shorted companies on the market as a percentage of float, given that 30% of the shares were off the market.  Yup, very smart exploitation of market dynamics given that:

 

-We're at the bottom of the real estate development cycle, automatically leading to low investor sentiment and therefore lower Mr. Market valuation

-The BP fallout is still on investors' minds

-Nothing has happened with JOE over the last few decades

-People immediately short whatever Einhorn presents as a short idea

 

Now whether this play by Einhorn was admirable is another question.  I personally do no think this is such a great way to make money.  I think his Lehman call was very intelligent, but it was like yelling to everyone that the house is on fire while simultaneously throwing gasoline on it.

 

But this presentation is forgivable because it doesn't really matter what the market price of JOE is since they have no financing issues.

 

 

[twacowfca]

Interesting.  So does this mean that he has changed his filing status to active investor so that he can push the company to let him buy more?  What are the limits on the percentage a mutual fund can own of a company?

 

I'm a huge Berkowitz fan, but I've always been wary about the JOE investment.  It does seem like it really could take decades to work out, if at all.

 

For what it's worth, I have a friend who's from Alabama and who has been to the Redneck Riviera, and he does indeed believe it to have some of the best beaches in the nation (other than Hawaii, of course).  But you also have hurricanes, swamps, and bugs to deal with too -- not to mention the rednecks.

 

 

I know what Bruce's secret plan is for this out of the way area.  He plans to turn it into a natural preserve for viewing that endangered sub species, the American redneck.   ;D

[philassor]

Pretty funny twacowfca  :)

 

More on the saga of dueling views of St. Joe, this one from barron's:

 

http://online.barrons.com/article/SB60001424052970203952604575552292313746762.html?mod=rss_barrons_features

 

I think this is going to be enjoyable (from the sidelines) to watch those two trying to outdo the other.

[biaggio]

http://www.scribd.com/doc/33669035/Buy-When-There-s-Oil-in-the-Water-Jun-10

 

Broyhill management presentation last summer

[BargainValueHunter]

**New**

 

http://jacksonville.com/community/st-johns/2010-10-19/story/st-johns-county-housing-development-readies-its-comeback

[BargainValueHunter]

Five years later Bloomberg declares Einhorn the winner:

 

http://www.bloomberg.com/news/articles/2015-10-23/einhorn-bests-fairholme-s-berkowitz-as-bet-against-st-joe-ends

 

David Einhorn got the better of Bruce Berkowitz in an almost decade-long bet against St. Joe Co. that ended last quarter.

 

Einhorn’s hedge fund, Greenlight Capital Inc., began selling borrowed shares of the real-estate developer in 2006 to profit from a drop in its stock price. His short sales put him at odds with Berkowitz, who heads Fairholme Capital Management LLC and was Morningstar Inc.’s fund manager of the decade for the 2000s. Berkowitz started buying St. Joe in 2007, and Fairholme is the company’s largest shareholder.

 

http://assets.bwbx.io/images/iBBWvrvnz9kE/v2/-1x-1.jpg

[Travis Wiedower]

Meh, Einhorn gained 53% on a 9 year investment. Not exactly something to write home about.