According to Kerrisdale Capital, whose founder and CIO is Sahm Adrangi, St. Joe Company which is currently valued at $ 1 billion, is over-valued. The firm recently released a report which explains why it is shorting, saying that much of the land developer’s holdings are swampy, remote and unlikely to be developed soon. Some of the places the developers claim to have potential are desolate wastelands.
St. Joe Company’s value has been rising as it implements its 50-year plan seeking to develop large tracts of land near Panama City Beach. However, this plan, dubbed ‘Bay-Walton Sector Plan,’ has hit numerous roadblocks and has not experienced real development in more than ten years. Moreover, the last time the plan received any blessing from state or local agents was in 2015, and also no public hearings have taken place, and no permits have been filed recently.
Furthermore, Fairholme Fund which owns $ 410million worth of St. Joe stocks in the form of 22.7 million shares (which is 24% of Fairholme assets) will have to limit its illiquid investments to 15% of net assets. To comply with new SEC regulations, Fairholme has to divest 10 million shares worth $ 180 million in 150 days, without ever affecting the price. Without these 150 trading days left before the December 1st deadline, there’s no time for an orderly unwind.
Sahm Adrangi also says that the partnership between St. Joe and Fairholme is rife with danger as Bruce Berkowitz, Fairholme fund manager, is the chairman of the St Joe board with two other directors also sitting on the same board. This opens up a possibility of a conflict of interest litigation, and in case the two directors leave the board, Kerrisdale anticipates a negative market reaction.
For St. Joes to keep its $ 1 million valuations, every year it would have to develop 2700 home-sites, 400k square feet of commercial space and become the best-selling master-planned community in the US. This is nearly impossible, and for this reason, among others, Sahm Adrangi is going short.