Einhorn is only focusing on 1.2% of JOE's land holding
Reader comment on: Einhorn Versus Berkowitz
Submitted by gakushi (United States), Oct 14, 2010 15:43
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?
The presentation is focused on total acreage of 6,950 (= 4170 (RiverTown) + 762 (SummerCamp) + 2020 (WindMark) see P106). 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.
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 http://files.shareholder.com/downloads/JOE/1037019379x0x356922/b193ab23-0c93-422a-ba69-e68c79d44823/JOE_IP_3.5.10.pdf 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 put it: "You can only spend the 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."
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!
Note: Comments are moderated by the editor and are subject to editing.
The Future of Capitalism replies:
Interesting analysis. If the Ackman-MBIA precedent holds, look for the shorts to pressure various regulators to "investigate," take action against, or otherwise act to depress the value of the company. Even if you are correct about the underlying value, in the short to medium term (which is all the shorts have to be right for), news of such things (driven by credulous reporters) may drive down the value of the stock.
Other reader comments on this item
|Short Selling [208 words]||J.Johnson||Oct 14, 2010 21:49|
|⇒ Einhorn is only focusing on 1.2% of JOE's land holding|
[w/response] [547 words]
|gakushi||Oct 14, 2010 15:43|
|↔ Reply to Gigakushi [453 words]||weiwuwei||Jan 6, 2011 15:49|
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