St. Joe Falls Most Since October After Disclosing SEC Probe

St. Joe Falls Most Since February Amid SEC Probe
A boy rides a bike past a stalled housing project at Rivertown, a St. Joe Co.'s development, in Jacksonville, Florida, Oct. 18, 2010. Photographer: Lori Moffett/Bloomberg

St. Joe Co., northern Florida’s largest landholder, fell the most in almost nine months in the first trading day since the company said it faces a formal investigation by the U.S. Securities and Exchange Commission.

The probe “covers a variety of matters,” including securities-law anti-fraud provisions for corporate officers and board members, internal controls and financial reports, Watersound, Florida-based St. Joe said in a July 1 filing. In January, St. Joe said the SEC was conducting an informal investigation of its real estate impairment practices.

Bruce Berkowitz, St. Joe Co.’s chairman, said there is “not a lot new” in last week’s announcement of the investigation, which named him and Miami-based Fairholme Capital Management LLC, the firm he founded and the largest owner of St. Joe stock.

“It was my decision” to disclose the stepped-up probe, Berkowitz said today in an interview with Erik Schatzker on Bloomberg Television’s “Inside Track.” Berkowitz said he made the filing so St. Joe wouldn’t be hindered in resuming a stock-purchase program.

Shares of St. Joe fell $1.90, or 9.1 percent, to $18.97 as of 4:15 p.m. in New York Stock Exchange composite trading, the biggest drop since Oct. 14. The stock is down 13 percent this year, compared with a 6.8 percent increase by the Russell 1000 Index.

Buy Back Shares

Berkowitz declined to comment on the intent of the SEC investigation. St. Joe, which owns about 574,000 acres of forest and coastal land in Northern Florida, needs to “preserve its ability to buy back shares in the open market,” he said.

St. Joe said last week that it ended a $125 million revolving credit facility with BB&T Corp. that had restricted its ability to buy back shares. The company has $103.8 million available under the program, according to the July 1 SEC filing.

David Einhorn, who runs New York-based hedge fund Greenlight Capital Inc., said Oct. 13, the day before St. Joe’s previous biggest drop, that the company failed to write down the value of its developments after the Florida real estate crash.

“We would love to see Joe use its limited cash resources by overpaying to repurchase its stock,” Einhorn said today in an e-mail.

Greenlight has an undisclosed short position in St. Joe. Short sellers sell borrowed stock in the hope of buying the securities later at a lower price and returning them to the lender.

Formal Investigation

St. Joe received a “related order of private investigation” on June 24, it said July 1. A formal investigation enables the SEC to subpoena documents and testimony, according to the agency’s enforcement manual.

Berkowitz, whose firm owns about 29 percent of St. Joe, was named chairman in March. Chief Executive Officer Britt Greene and three other board members resigned Feb. 28 after Berkowitz criticized their spending and corporate governance.

He said he expects Fairholme to become active in other companies where he sees problems as he saw at St. Joe.

“Mutual funds don’t usually become activists, but it had to be done,” Berkowitz, who was named fund manager of the decade by Morningstar Inc. in 2010, said today on Bloomberg Television. “At Fairholme, such actions will continue as we continue to grow and we continue to act in the interests of our shareholders.”

Land Valuations

St. Joe’s land, most of which was purchased in the 1930s and 1940s, is fairly valued, Berkowitz said.

“St. Joe’s board and executives have been very, very conservative and spent a lot of money making sure we were doing it correctly,” he said in a July 2 telephone interview. The company reviewed its valuations at least three times since Einhorn first raised questions about impairments, according to Berkowitz.

The land on St. Joe’s books is valued at the price of forest land today, which doesn’t account for waterfront properties and commercial sites, such as one recently sold to Wal-Mart Stores Inc. for hundreds of thousands of dollars an acre, said Sheila McGrath an analyst with Keefe Bruyette & Woods Inc. in New York.

“I’d be very surprised if they’re not vindicated because their real estate is on the books at well below market value,” she said today in a telephone interview.

In a note to investors, McGrath maintained her “outperform” rating of St. Joe, with a price target of $33.

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