GRIF - Griffin Industrial Realty

[jckund]

Anyone knows how to use get the control number from Interactive Brokers?  These Virtual meetings have been frustrating to attend.

 

GRIFFIN INDUSTRIAL REALITY, INC. will be hosting a Virtual Stockholder Meeting this year. The meeting will be held on Thursday, May 7, 2020 at 2:00 PM Eastern Time and stockholders of record will be able to vote and ask questions online during the meeting. If you would like to attend the virtual meeting and you have your control number, please go to www.virtualshareholdermeeting.com/GRIF2020 5 minutes prior to the start of the meeting to log in. If you came through your brokerage firm's website and do not have your control number, you can gain access to the meeting by logging into your brokerage firm's website 15 minutes prior to the meeting start, selecting the shareholder communications mailbox to link through to the meeting and the control number will automatically populate.

 

I'm also having the same problem with Ameritrade...

[BG2008]

This is a pretty good profile on the new board member, Molly North

 

https://www.bizjournals.com/bizwomen/news/profiles-strategies/2015/06/the-troubleshooter-takes-over-how-molly-north-got.html?page=all

 

For a small $200mm market cap company, Griffin has a surprisingly sophisticated Board of Directors

 

Gordon Dugan (Chairman and sold previous company to Blackstone for $7.6bn)

Edgar M. Cullman Jr (Family)

Fred Danziger (Family, gave up chairman role)

Michael Gamzon (CEO/Family)

Jonathan P May (Seems like a sucessful general business owners)

Molly North (Successful female CEO of a RE development company)

Amy Rose Silverman (Successful female CEO of a NYC based RE company)

Albert H Small (RE Developer)

David R Bechtel (Principal of PE Firm)

 

2/9 directors are female and only 3 out of 9 are from family.  Boards is a lot more legitimate than companies of this size. 

 

 

 

[BG2008]

Anyone know of any reason for the 5 day $11 march upward?  $1mm of dollar volume traded yesterday. 

[shhughes1116]

Anyone know of any reason for the 5 day $11 march upward?  $1mm of dollar volume traded yesterday. 

 

I assumed it was just re-tracement of the losses experienced in Feb/March - just took longer because it was illiquid. 

[jckund]

Anyone know of any reason for the 5 day $11 march upward?  $1mm of dollar volume traded yesterday. 

 

I assumed it was just re-tracement of the losses experienced in Feb/March - just took longer because it was illiquid.

 

But this has broken through those pre-COVID highs. Quite the run these past few days.

[BG2008]

Just touched $52.90.  Gordon Dugan working his magic? 

[Gregmal]

This is a great example of what happens when the forces of true small/micro cap value play out. Unstoppable. Everything is working for this one.

[realassetsvalue]

98% of rent collected in June (and May), 8% cash basis rent growth on leases representing about 10% of the portfolio, improved transparency on their quarterly leasing (although I'd still like to see more clarity around their leasing!) - all positives: http://www.griffinindustrial.com/about/news-events/griffin-announces-fiscal-2020-2nd-quarter-leasing-updates

 

Still plenty of work to do on their Orlando acquisitions and planned developments and its taking some time to lease their Charlotte spec project. Did anyone attend the digital annual meeting and ask their rationale on adding Orlando as a market?

[BG2008]

98% of rent collected in June (and May), 8% cash basis rent growth on leases representing about 10% of the portfolio, improved transparency on their quarterly leasing (although I'd still like to see more clarity around their leasing!) - all positives: http://www.griffinindustrial.com/about/news-events/griffin-announces-fiscal-2020-2nd-quarter-leasing-updates

 

Still plenty of work to do on their Orlando acquisitions and planned developments and its taking some time to lease their Charlotte spec project. Did anyone attend the digital annual meeting and ask their rationale on adding Orlando as a market?

 

Missed this yesterday.  Just wow on the rent collection and performance in general.  It's quite incredible. 

[BG2008]

Just thinking outloud

 

One of my concerns with GRIF is that if we go through a recession, it would be hurt bad.  This is largely because warehouses historically tend to be rather economics sensitive.  If you look at what happened to Prologis during 08/09, it got obliterated.  I believe part of the issues was also the high leverage.  The REIT asset class as a whole did rather poorly during that time.  So, GRIF just experienced a really tough test and it passed with flying color.  That comment about being worried when people say "this time it's different."  I think this time is a little bit different in that this recession is forcing companies to quickly adapt e-commerce strategies.  With the mix between physical retail and e-commerce, there will likely be a multi-year tail wind for the warehouse asset class.  Perhaps, I am not giving GRIF enough credit for this tail wind.  Perhaps, my views are colored by how frustrating owning GRIF has been.  You only need to go back about a year and read some of the comments on this board.  People were very skeptical about the management team, the company, the asset class, etc.  If you look at the growth rates of Amazon, Wayfair, and a slew of other e-commerce companies this year, it should not surprise you that warehouses should benefit. 

 

One of my concerns going into this recession is that the hype for these high growth e-commerce companies will cease and we will find them swimming naked.  Yet, they actually emerge a bit stronger with this pandemic.  With a higher probability of passing the stress test this year and with the market seemingly starting to agree, perhaps the march from $50 to $60 maybe faster and quicker than the grind from $35 to $40.  I remember that people really discounted FRP Holdings for a long time.  But when it went from $50 to $67, it went really really fast with a lot of momentum behind it.  Afterward, the market kind of set a floor on the share until we experienced Covid 19.  Yes, value investors should focus on price/NAV.  But sometimes, we should also pay attention when a stock starts working and sentiments are changing.  We can certainly learn. 

 

 

[BG2008]

46,233 shares traded today, new high of $54.95.  Roughly $2.5mm of dollar volume traded.  New highs, higher share volume, higher dollar volume.  Seems like there is a bit of momentum behind the name.  It's weird for me to talk this way.  But I think it is important to pay attention to this.  The larger volume is likely institutional capital getting into the name.  I hope Gabelli is trimming his position as I believe that a higher float will be important to the thesis going forward.   

[Gregmal]

I would add that most of the volume occurred in the last 30/60 minutes of trading and typically seems consistent with previous volume action around the  double/triple/quadruple witching. Same thing happened and was covered on page 6 of this thread, on 9/20/19.

[BG2008]

It traded over 20,000 shares before that last 30 minutes.  In the last 10 days, dollar volume is roughly $1mm a day.  If you are a fund that is trying to build a $2-3mm position, it is actually doable now. 

[BG2008]

Sooooo, I have been thinking lately about GRIF and this is something that was not a possible scenario even 6 months ago for me.  The march from the $30 to $56 is just incredible.  I have held this name for 2-3 years and gotten all sorts of push back from people, son-in-law, family control, etc.  Anyway, now that the shares are starting to trade at close to my NAV of roughly $70 (give or take $10 in either direction), I have been thinking about why the stock is here today and what to do with the position.  I think the combination of the company fundamentally performing well, 98% rent collection and 8.1% cash rent increases on 400k sqft were very positive developments.  The question here is what if this trades into the $60s and onto $70 and GRIF actually uses the ATM so that they can buy some assets?  Since they can get financing in the 3s now, they can probably get WACC in the 4s.  If they can develop or acquire at  6% cap rate, it will actually be quite accretive.  As a value investor, this is a scenario that I would not have thought of.  But every channel check on Gordon Dugan basically comes back "Dugan is involved?  Oh, yeah, let me look at it?  Or he made me a lot of money at Gramercy"  Does GRIF winds up benefiting from reflectivity?  If GRIF trades above $70, I would probably be willing to hold onto the shares as a way to see how they arbitrage the private to public delta.  That was a key aspect of Gramercy's thesis.  Yes, you can no longer buy warehouses at a 9% cap rate anymore like they did 7-8 years ago.  But if the WACC is 4% and you can buy at 6%, that's an incredible amount of value creation.  I hope I am not setting myself up for disappointment, but a REIT's ability to issue cheap equity is the reason why many REITs go pubic to begin with.  The advantage of having a cheap cost of capital is very.  The difference between GRIF and a Prologis is that small bolt on really move the needle for GRIF. 

 

Thoughts?  Pushbacks?  If  your thought is "BG, lay off the pipe!", let me know.

 

PS. The public comps trade at a 4% cap rate.  So I don't think it's a stretch to imagine a WACC in the 4s.  They may have to issue some shares at a slight discount to build the shareholder base.  More trading begets more volume which begets a larger shareholder base.  It is very counter intuitive for value investors, but I have seen it happen before. 

[Packer16]

You may want to capitalize the G&A expenses of $8m per year into your calcs @ either 5 or 10% as the leasing NOI adds back G&A.  This would reduce value by $80m to $160m.

 

Packer

[BG2008]

You may want to capitalize the G&A expenses of $8m per year into your calcs @ either 5 or 10% as the leasing NOI adds back G&A.  This would reduce value by $80m to $160m.

 

Packer

 

Packer,

 

At most, you would add back $5mm as we know that it cost $3mm minimal for a company of Griffin's size to be public, audit, BOD, C-level executives, etc.  Anyone who thinks that all G&A should be $0 are free to start your own publicly traded companies and not pay yourself a salary and pay for audits out of your pockets.  In that $5mm, a portion of it is running leasing cost through the P&L instead of capitalizing it.  Some of it also includes property taxes on their land holding.  I wouldn't cap it at 5%.  A cap rate at 5% implies you're holding it for 20 years.  Take privates of GRIF will be done at $60-70 based on cap rates for deals in the private market.  Acquistions are done without capping the G&A and is based on four wall NOI.  I did not make these metrics up.  It's industry standards.  If you really want to be fair, you would probably cap $4-5mm at 8x.  8x would realistically discount the fact that in 8 years, they will likely have sufficient scale to absorb all the G&A or it maybe sold or acquired.  I think 8x or 12% cap at $4-5mm is appropriate. Frankly, if this were owned by PE, you would be paying a 2% management fee which would be close to $8mm a year anyway. 

 

Let's remember one thing, no one sets up public companies with no G&A.  Berkshire may not have a lot of G&A at the headquarter, but I guarantee you that there's G&A at the sub level that might have been at the corporate level if they were to run a bit more centralized. 

 

[bizaro86]

I dont think anyone is saying you shouldn't have G&A. Just that you should deduct it from your valuation. If your thesis is they get bought out in 3 years and the buyer saves 100% of the G&A then only deduct 3 years worth if you're comfortable with that.

 

Otherwise, why not take the NOI with G&A burden and apply your cap rate to that? It's real money that's getting spent on something...

[BG2008]

I dont think anyone is saying you shouldn't have G&A. Just that you should deduct it from your valuation. If your thesis is they get bought out in 3 years and the buyer saves 100% of the G&A then only deduct 3 years worth if you're comfortable with that.

 

Otherwise, why not take the NOI with G&A burden and apply your cap rate to that? It's real money that's getting spent on something...

 

Because in a private sale, they strip out 100% of the G&A to arrive at a valuation

[bizaro86]

I dont think anyone is saying you shouldn't have G&A. Just that you should deduct it from your valuation. If your thesis is they get bought out in 3 years and the buyer saves 100% of the G&A then only deduct 3 years worth if you're comfortable with that.

 

Otherwise, why not take the NOI with G&A burden and apply your cap rate to that? It's real money that's getting spent on something...

 

Because in a private sale, they strip out 100% of the G&A to arrive at a valuation

 

Sure. That's why I said if they get bought out in year 3 you should deduct 3 years of G&A.

 

I would just be careful about mixing your valuation methods here. If you think they're going to grow into a low cost of capital acquirer with a WACC of 4% and make 6% acquisitions great.

 

But that is incompatible with them selling out soon enough that you can disregard G&A, imo.

[BG2008]

You may want to capitalize the G&A expenses of $8m per year into your calcs @ either 5 or 10% as the leasing NOI adds back G&A.  This would reduce value by $80m to $160m.

 

Packer

 

Just to illustrate how flawed this argument is a $80 to $160mm valuation is $16 to $32 per share roughly.  If the private market NAV is $60-70/share, then this implies fair value of $28 to $54.  The current price is 0-92% above the fair value.  Is the market really that inefficient?  Or do you use a private market value that is backed by a deep pool of potential buyers that are willing to pay for this asset?  Isn't that the very definition of intrinsic value?  Multiple buyers who are willing to pay $60-70/share in arms-length-transaction?  I buy that the value creation going forward will be impeded by $1/share per year.  But I don't think it is appropriate to penalize a real estate company for expense that has not incur yet. 

 

Bizarro,

 

What would be your suggestion for what is the appropriate year to discount?  Is it 3, 5, 10, 15, or 20 years?  In a weird way, you can actually change the NAV of a real estate company simply by arbitrarily picking your own sale date?  I suggest that it is much more "real world" if you reduce your forward NAV appreciation because the G&A acts as a bigger anchor.  But the G&A should not reduce what you can sell by running a quick auction for the portfolio.

 

My 2 cents

 

With regards to the timeline for growing into 4% WACC.  My observation is that investors are now excited about GRIF because of Gordon Dugan.  Previously they had no reason to own GRIF like many mentioned on the board.  I speculate that GRIF may trade to a sub 6% cap rate, they issue some equity which increases float, which allows bigger funds to buy, and the whole going to 5% WACC and then 4% WACC could literally happen in the next few months.

[Guest Schwab711]

You may want to capitalize the G&A expenses of $8m per year into your calcs @ either 5 or 10% as the leasing NOI adds back G&A.  This would reduce value by $80m to $160m.

 

Packer

 

Just to illustrate how flawed this argument is a $80 to $160mm valuation is $16 to $32 per share roughly.  If the private market NAV is $60-70/share, then this implies fair value of $28 to $54.  The current price is 0-92% above the fair value.  Is the market really that inefficient?  Or do you use a private market value that is backed by a deep pool of potential buyers that are willing to pay for this asset?  Isn't that the very definition of intrinsic value?  Multiple buyers who are willing to pay $60-70/share in arms-length-transaction?  I buy that the value creation going forward will be impeded by $1/share per year.  But I don't think it is appropriate to penalize a real estate company for expense that has not incur yet. 

 

Bizarro,

 

What would be your suggestion for what is the appropriate year to discount?  Is it 3, 5, 10, 15, or 20 years?  In a weird way, you can actually change the NAV of a real estate company simply by arbitrarily picking your own sale date?  I suggest that it is much more "real world" if you reduce your forward NAV appreciation because the G&A acts as a bigger anchor.  But the G&A should not reduce what you can sell by running a quick auction for the portfolio.

 

My 2 cents

 

With regards to the timeline for growing into 4% WACC.  My observation is that investors are now excited about GRIF because of Gordon Dugan.  Previously they had no reason to own GRIF like many mentioned on the board.  I speculate that GRIF may trade to a sub 6% cap rate, they issue some equity which increases float, which allows bigger funds to buy, and the whole going to 5% WACC and then 4% WACC could literally happen in the next few months.

 

My pushback to the idea that GRIF should be priced as if it was sold tomorrow (as you are implicitly doing) is that the market price should be a discount to that FV calculation. I'm guessing you would be upset if GRIF traded for $65 and an acquirer offered to purchase 100% for $65. Yet, based on your logic, why would any acquirer want to purchase GRIF for more than the private market value? Let's assume $60-$70 is FV, then a 20%-25% discount would likely be sufficient to represent the lack of control and the fact that we know an immediate sale is unlikely.

 

That gets to a reasonable price of $45-$56 (25% off $60 and 20% off $70). That seems to accomplish the same thing that others are suggesting, but with different logic to arrive at that price. As of today, it is undeniable that GRIF does in fact have G&A and they can't distribute it to shareholders because it is an expense. That's real money that should be accounted for. As a minority shareholder, we can't change this policy. Nor can we force the company to shop itself today to realize FV. All else equal, I'd rather actually own and control a property than not. I think that's what others are getting at with their critiques.

[BG2008]

I need a break from this thread and this forum in general.  Clearly, I am not knowledgeable when it comes to real estate investing. 

[bizaro86]

You may want to capitalize the G&A expenses of $8m per year into your calcs @ either 5 or 10% as the leasing NOI adds back G&A.  This would reduce value by $80m to $160m.

 

Packer

 

Bizarro,

 

What would be your suggestion for what is the appropriate year to discount?  Is it 3, 5, 10, 15, or 20 years?  In a weird way, you can actually change the NAV of a real estate company simply by arbitrarily picking your own sale date?  I suggest that it is much more "real world" if you reduce your forward NAV appreciation because the G&A acts as a bigger anchor.  But the G&A should not reduce what you can sell by running a quick auction for the portfolio.

 

My 2 cents

 

 

One way to think of this might be:

 

IV = Present Value ( current value of assets + growth prior to sale - G&A prior to sale)

 

I don't think we disagree dramatically, just saying it in a somewhat different way.

 

It might be interesting to do a valuation this way assuming different years of sale and see how the present value changes. Obviously it would be very sensitive to the growth assumptions (and discount rate used) but I suspect you'd see the G&A pull the value down the longer you run it.

[thepupil]

Bill, you've already invited enough competition for stock. No need to coherently make the long term case anymore than you already have :). This gap is unlikely to be resolved by incremental buyers of stock, but rather a sale of assets or the company.

 

Yes, I bought a few thousand shares for the family at around $36 and change. I can't speak to whether or not we were some specific block.

 

As a going concern it's not that cheap. But the probability of "asset conversion activities" over the next 0-5 years is high. Y'all need to stop focusing on the primacy of the income statement. Sure the family might take Something Off The Top, but this stock is a wonderful holding for the aggressive conservative investor.

 

Bump, with relevant portion bolded. What BG2008 is speculating, I believe is that it's possible that GRIF is shifting from trading at a management/G&A/subscale/low stock liquidity related discount to a accretion story/management/secular tailwind/compounder premium.

 

the assets have not drastically changed, the market has gone down, and yet the stock is up 40-50%. what's changed is an acceleration of the e-commerce tailwinds to industrial real estate, the change in chairman, and liquidity in the stock has improved.

 

if you think real estate stocks should ALWAYS trade at a G&A discount or that they can't trade at premiums, I'd point to the net lease REITs which have in the past sustained big NAV premiums and used them to grow IVPS at a greater rate than they otherwise would, I'd point to American Tower and the data center REITs, also prolific issuers at good prices, I'd point to office REITs in 2014/5. Sentiment is fickle and can change, but the inflection in sentiment potentially increases the intrinsic value of GRIF because of the ability to accretively issue. the small starting base makes accretion more powerful.

 

the market may be looking forward to GRIF scaling up to become a real stock via accretion and growth, rather than looking at the existing estate of assets and slapping on a G&A discount.

 

I am a tepid trimmer here. I hope BG2008's speculation is correct and expect further upside. nevertheless the discount has narrowed significantly, and the stock is potentially less "safe" than it was in the $30s. I find it easiest to buy on the way down and hardest to hold on the way up; I think complete exit is a potential mistake because of BG2008's scenario.

 

the choice between "will they sell" or "will this be a going concern" is not binary. What if they scale up for the next 5 years, then sell to a bigger REIT/PE? I think that's the bull case. The answer is not either/or but YES/BOTH. Bear case is they don't scale and it's a going concern at small illiquid g&A burdened scale.

 

REITs w/ savvy managements (or really any company, but more relevant to pass through entities dependent on capital markets instead of earnings retention) are long the volatility in their NAV premiums. Big discount = repurchase accretion (PGRE is buying back 5% / quarter). Big premium = issuance accretion. Fair value = nothing to do.

 

GRIF is potentially making the uncomfortable transition of discount to premium. It has to pass through the least sexy part (fair value) to get there though.

[Guest Schwab711]

 

Thoughts?  Pushbacks?  If  your thought is "BG, lay off the pipe!", let me know.

 

 

 

I need a break from this thread and this forum in general.  Clearly, I am not knowledgeable when it comes to real estate investing. 

 

 

I don't understand? You asked for thoughts and pushback?