Interesting article ...
MarketWatch Weekend Investor: St. Joe's Real-Estate Strategy May Test Patience of Investors
Herb Greenberg. Wall Street Journal. (Eastern edition). New York, N.Y.: Sep 16, 2006. pg. B.4
SAY WHAT YOU WILL about real estate, but this much is true: If you buy right, you do well. "If you buy wrong," says hedge-fund manager Eric Von der Porten of Leeward Investments in San Carlos, Calif., "you'll lose your shorts."
The same goes for the stocks of real-estate companies and pretty much describes the bull-bear battle over the stock of St. Joe Co., the largest private land owner in Florida. The stock went on a tear, on heavy volume, after recently announcing plans to exit from the home- building business. Instead, St. Joe will sell to other home builders and developers.
The timing couldn't be better, or look smarter, considering the impact falling real-estate values have had on the company's earnings (which could best be described as lumpy) and cash flow (which in recent quarters has been negative).
Earnings lumpy and cash flow negative? Not to worry, says Michael Winer, portfolio manager of Third Avenue Real Estate Fund, which has owned St. Joe since 1998 and whose employer, Third Avenue Management, is the company's largest shareholder. In a letter to his investors, Mr. Winer called St. Joe "a wealth creation company, not an earnings company." Echoing that sentiment in the current issue of Forbes, money manager Lisa Hess writes: "Don't pay much mind to earnings . . . You are buying assets here. You are betting on the continued southward migration of an aging population."
Barring some kind of takeover -- and there is no indication one might occur -- investors buying the stock at these levels for something greater than earnings might need the patience of, well, a saint. And that's assuming everything works out just as planned.
Much of the bull story talks about the commercial and residential potential of St. Joe's land, which the company says has a "very low" cost basis, and the steady migration of people to Florida. But much of the land owned by St. Joe is in what is still a largely rural, somewhat swampy and woodsy part of northwestern Florida known as the Panhandle -- not exactly the "Florida" retirees necessarily think of when they think of Florida. Its weather can be un-Florida-like cold in the winter and subtropical sauna-like in the summer. In addition, while some of its developments are on the Gulf of Mexico and include bay-front property, roughly 40% of the land is described as being "within" 10 miles (as the mosquito flies) of the Gulf. That means 60% is farther inland. A problem? Hardly, says St. Joe spokesman Jerry Ray: "Many believe that inland areas of the Panhandle are some of the most beautiful spots on earth," he says.
Perhaps, but it's also a part of Florida that isn't easy to get to. As The Wall Street Journal noted in recent days, St. Joe hopes that problem is resolved with the construction near Panama City of a large airport, which received Federal Aviation Administration approval on Friday but still faces other regulatory hurdles. But even if the airport is approved, there are possibilities environmentalists could block construction, at least temporarily. That, in turn, means it might be awhile before St. Joe shareholders can realize what the bulls believe is its full potential.
Until then, earnings, cash flow and other metrics traditionally favored by investors are likely to matter. In August, St. Joe sliced its 2006 earnings forecast for the second time in three months.
"If the airport is built, there will be significant value in land St. Joe owns and the value will be realized over time," says Mr. Von der Porten of Leeward Investments, who has shorted, or bet against, St. Joe. "You can buy into a great piece of real estate, but then again, if you pay too much up front you won't make a great return." That goes double when some of what you are talking about is swampland in Florida.
MarketWatch Weekend Investor: St. Joe's Real-Estate Strategy May Test Patience of Investors
Herb Greenberg. Wall Street Journal. (Eastern edition). New York, N.Y.: Sep 16, 2006. pg. B.4
SAY WHAT YOU WILL about real estate, but this much is true: If you buy right, you do well. "If you buy wrong," says hedge-fund manager Eric Von der Porten of Leeward Investments in San Carlos, Calif., "you'll lose your shorts."
The same goes for the stocks of real-estate companies and pretty much describes the bull-bear battle over the stock of St. Joe Co., the largest private land owner in Florida. The stock went on a tear, on heavy volume, after recently announcing plans to exit from the home- building business. Instead, St. Joe will sell to other home builders and developers.
The timing couldn't be better, or look smarter, considering the impact falling real-estate values have had on the company's earnings (which could best be described as lumpy) and cash flow (which in recent quarters has been negative).
Earnings lumpy and cash flow negative? Not to worry, says Michael Winer, portfolio manager of Third Avenue Real Estate Fund, which has owned St. Joe since 1998 and whose employer, Third Avenue Management, is the company's largest shareholder. In a letter to his investors, Mr. Winer called St. Joe "a wealth creation company, not an earnings company." Echoing that sentiment in the current issue of Forbes, money manager Lisa Hess writes: "Don't pay much mind to earnings . . . You are buying assets here. You are betting on the continued southward migration of an aging population."
Barring some kind of takeover -- and there is no indication one might occur -- investors buying the stock at these levels for something greater than earnings might need the patience of, well, a saint. And that's assuming everything works out just as planned.
Much of the bull story talks about the commercial and residential potential of St. Joe's land, which the company says has a "very low" cost basis, and the steady migration of people to Florida. But much of the land owned by St. Joe is in what is still a largely rural, somewhat swampy and woodsy part of northwestern Florida known as the Panhandle -- not exactly the "Florida" retirees necessarily think of when they think of Florida. Its weather can be un-Florida-like cold in the winter and subtropical sauna-like in the summer. In addition, while some of its developments are on the Gulf of Mexico and include bay-front property, roughly 40% of the land is described as being "within" 10 miles (as the mosquito flies) of the Gulf. That means 60% is farther inland. A problem? Hardly, says St. Joe spokesman Jerry Ray: "Many believe that inland areas of the Panhandle are some of the most beautiful spots on earth," he says.
Perhaps, but it's also a part of Florida that isn't easy to get to. As The Wall Street Journal noted in recent days, St. Joe hopes that problem is resolved with the construction near Panama City of a large airport, which received Federal Aviation Administration approval on Friday but still faces other regulatory hurdles. But even if the airport is approved, there are possibilities environmentalists could block construction, at least temporarily. That, in turn, means it might be awhile before St. Joe shareholders can realize what the bulls believe is its full potential.
Until then, earnings, cash flow and other metrics traditionally favored by investors are likely to matter. In August, St. Joe sliced its 2006 earnings forecast for the second time in three months.
"If the airport is built, there will be significant value in land St. Joe owns and the value will be realized over time," says Mr. Von der Porten of Leeward Investments, who has shorted, or bet against, St. Joe. "You can buy into a great piece of real estate, but then again, if you pay too much up front you won't make a great return." That goes double when some of what you are talking about is swampland in Florida.
