The recent valuation of the St. Joe Company (NYSE: JOE) has investors shaking their heads and wondering where the results of such a report were derived from, as Kerrisdale Capital has come to state that such results are vehemently incorrect.
St. Joe Company (NYSE: JOE) is a land development company that is located in Florida. As Florida’s second largest private landowner, the real estate development company seems like it would be an attractive investment to add to one’s portfolio, though behind the scenes, transparency means that it is anything but a safe bet.
Here’s Why The St. Joe Company Valuation Is Wrong – The Underdeveloped Land
The St. Joe Company (NYSE: JOE) is a ~$1 billion Florida real estate company that has big dreams – dreams to transform a large, open area of desolate space near Panama Beach City into an appealing place for both retirees and businesses alike. This open, empty space is 177k acres and predominantly swampy and desolate. There is virtually nothing in this space, currently occupied by industrial pine. Even if this were inhabitable land, the time and patience needed to transform such space is virtually impossible.
With such land comes high hopes. The St. Joe Company (NYSE: JOE) is making lofty assumptions, and ones that Kerrisdale feels are completely incorrect and off-base. Management of St. Joe Company (NYSE: JOE) has sold investors on a long-term promise – a really long-term promise. It is a 50-year plan to turn the aforementioned swamp land into a booming destination for retirees and businesses. Yet, there has been virtually no progress made for over one decade. From an investment perspective, how can this be considered a sound investment? From research that Kerrisdale Capital Investment has conducted, there has been remarkably minimal activity made in terms of permit filings or any other advancements.
Fairholme Fund and The St. Joe Company relationship makes for uncomfortable waters
St. Joe Company (NYSE: JOE) has many shareholders in question, though the largest shareholder is the Fairholme Fund, which is a fund managed by Bruce Berkowitz. This fund owns 22.7 million shares, which represents 24% of Fairholme Fund assets.
Based on new SEC liquidity management rules, which limit illiquid investments for 15% of net assets, it will be determined that Fairholme Fund must comply with the new SEC rules. This means that the fund will need to drastically reduce investment in the St. Joe Company (NYSE: JOE).
Yet, there are many question marks that arise when it comes to the relationship between the Fairholme Fund and the St. Joe Company (NYSE: JOE). One, of which, is the relationship between Bruce Berkowitz and the St. Joe Company (NYSE: JOE). Berkowitz is a chairman of the St. Joe Company (NYSE: JOE) board, with two other Fairholme directors also sitting on the board. This relationship not only poses a conflict of interest, it also subjects both companies to possible litigation over the new SEC rules.
If Berkowitz and his directors depart from the board, this could result in a negative market reaction, indicating a possible lack of trust.
Kerrisdale Capital Involvement
The report made from Kerrisdale Capital must be met with context. Kerrisdale Capital is focused on long-term, high value investments and is committed to being integrated with event-driven special situations. Sahm Adrangi‘s Kerrisdale Capital have short positions on the stock of St. Joe Company (NYSE: JOE), and are passionate about digging in to the financials around St. Joe Company (NYSE: JOE) for clients and investors.
Learn more about Sahm Adrangi
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