GRIF - Griffin Industrial Realty

[BG2008]

CEO gave a pretty compelling presentation at NAREIT.  For those that have access, the video recording is available till Dec 5th.  The key takeways are

 

1) Pathway to $31mm of NOI with existing development pipeline and lease renewals and rent increases

2) Fixed G&A is an advantage as any additional development and acquisitions will largely flow to FFO

3) Asset class is uniquely position and has experience developing warehouses

4) Smaller companies means deals move the needle

5) Market is fragmented. 800lb gorilla Prologis is less than 3% of the market share

6) Went into detail about how they size up deals and specific markets that they are interested in.  Michael sounds like he's been well coached. 

 

Trading volume is now about $1mm a day which allows instititutions to build real positions.  Ugly duckling ==> swan transition continues

[BG2008]

Also saw that Bulldog investors which some people have mentioned on this forum owns about 60bps position that they bought during 1H this year.  Page 11 of the following link

 

https://specialopportunitiesfundinc.com/wp-content/uploads/sites/40/2020/08/SOF-Semiannual-f.pdf

[villainx]

CEO gave a pretty compelling presentation at NAREIT.  For those that have access, the video recording is available till Dec 5th.  The key takeways are

 

1) Pathway to $31mm of NOI with existing development pipeline and lease renewals and rent increases

 

Need to be a member to access video?  Though I guess the main points are clear enough from presentation.

[BG2008]

CEO gave a pretty compelling presentation at NAREIT.  For those that have access, the video recording is available till Dec 5th.  The key takeways are

 

1) Pathway to $31mm of NOI with existing development pipeline and lease renewals and rent increases

 

Need to be a member to access video?  Though I guess the main points are clear enough from presentation.

 

Yeah, it's more of an institution event.  I think the CEO did a better job than they did during the investor day. 

[shhughes1116]

I am in awe of the Gordon DuGan magic.  New high of $71.88 on 21,160 shares traded today on a down day in the market.  When I grow up, I want to be Gordon DuGan.

 

I was impressed with his work at WPC, and again with his work at GPT.  He seems to do a good job at laying out his vision, executing on his vision, and doing all this while treating shareholders well. 

 

I had planned to sell GRIF as the price moved closer to NAV.  However, with Gordon around, I've kept the entire position.

[Williams406]

NAREIT slide deck here:

https://griffinindustrial.com/wp-content/uploads/2019/06/NAREIT-REITworld-Conference-11.13.20-vFINAL-Updated-REDUCED2.pdf

 

 

[BG2008]

I think GRIF is currently experiencing the Brisket Stall phenomenon.  It is in an area where it is a little below NAV.  Hopefully, this is a small stall and maybe we can use a Texas Crutch technique to get it over the stall. 

 

https://goshindig.com/brisket-stall/

https://goshindig.com/wp-content/uploads/2019/07/the-brisket-stall-graph.jpg

 

It has been a fun month, y'all!

 

It looks like we have crossed over the brisket-stall phase of the NAV discount/premium trading dynamic.  It feels so weird for me to constantly babble about the stock price of GRIF and it is very contrary to the value principles preached at the church of Warren Buffett.  But the reflexivity is very real here and I suspect that the price momentum probably has a few momo funds traders participating in this name as well.  Recognizing the shift from deep value to growth story was probably the best "enlightenment" moment for me in 2020 as I had to force myself to stop trimming my position.  That whole thread in the mid 20s pages outlining that transition in thought in real time was super interesting to read in hindsight. 

 

This one has been fun to participate in and I get what Gregmal is saying about GRIF giving us a glimpse of what it is like to be a tech investor in the last 10 years.  New highs again today.  I am really hoping that the company is using their ATM to issue shares that amounts to 10% of the shares outstanding.     

[villainx]

It feels so weird for me to constantly babble about the stock price of GRIF and it is very contrary to the value principles preached at the church of Warren Buffett.  But the reflexivity is very real here and I suspect that the price momentum probably has a few momo funds traders participating in this name as well.  Recognizing the shift from deep value to growth story was probably the best "enlightenment" moment for me in 2020 as I had to force myself to stop trimming my position. 

 

I guess I don't find it as weird as you suggest at first because this was a sort of cigar butt type transaction? It was certainly undervalued, and the fair value was guesstimate-able.  Dugan's arrival kinda changed the equation a bit.

[BG2008]

I think GRIF is currently experiencing the Brisket Stall phenomenon.  It is in an area where it is a little below NAV.  Hopefully, this is a small stall and maybe we can use a Texas Crutch technique to get it over the stall. 

 

https://goshindig.com/brisket-stall/

https://goshindig.com/wp-content/uploads/2019/07/the-brisket-stall-graph.jpg

 

It has been a fun month, y'all!

 

It looks like we have crossed over the brisket-stall phase of the NAV discount/premium trading dynamic.  It feels so weird for me to constantly babble about the stock price of GRIF and it is very contrary to the value principles preached at the church of Warren Buffett.  But the reflexivity is very real here and I suspect that the price momentum probably has a few momo funds traders participating in this name as well.  Recognizing the shift from deep value to growth story was probably the best "enlightenment" moment for me in 2020 as I had to force myself to stop trimming my position.  That whole thread in the mid 20s pages outlining that transition in thought in real time was super interesting to read in hindsight. 

 

This one has been fun to participate in and I get what Gregmal is saying about GRIF giving us a glimpse of what it is like to be a tech investor in the last 10 years.  New highs again today.  I am really hoping that the company is using their ATM to issue shares that amounts to 10% of the shares outstanding.   

 

Meant to say 10% of the shares today daily as they is the often cited max buyback figures by various managements

[BG2008]

KKR Nears $800mm warehouse deal

 

https://www.bloomberg.com/news/articles/2020-12-02/kkr-nears-800-million-warehouse-deal-with-e-commerce-booming?sref=crzXzEVm

[Williams406]

If KKR offers $800 million for Griffin's properties, I would accept that offer...

[fareastwarriors]

KKR Nears $800mm warehouse deal

 

https://www.bloomberg.com/news/articles/2020-12-02/kkr-nears-800-million-warehouse-deal-with-e-commerce-booming?sref=crzXzEVm

 

https://therealdeal.com/national/2020/12/04/blackstone-acquires-358m-warehouse-portfolio/

 

Blackstone acquires $358M warehouse portfolio

Properties are in California, northern New Jersey and Pennsylvania

[BG2008]

New highs again, this one is working out much better than I thought.  The more over valued it becomes, it could potentially be more under valued.  It's a weird feeling being a value investors at these prices.  My rational brains tells me I should keep taking chips off the table.  My trading instinct tells me that momo begets more momo and this is exactly why companies go public so that they can exploit low WACC to grow the business.  I am a little bit torn, but I should probably just leave this one alone. 

 

Thoughts? 

[BG2008]

If KKR offers $800 million for Griffin's properties, I would accept that offer...

 

I can assure you it's not KKR

[EricSchleien]

New highs again, this one is working out much better than I thought.  The more over valued it becomes, it could potentially be more under valued.  It's a weird feeling being a value investors at these prices.  My rational brains tells me I should keep taking chips off the table.  My trading instinct tells me that momo begets more momo and this is exactly why companies go public so that they can exploit low WACC to grow the business.  I am a little bit torn, but I should probably just leave this one alone. 

 

Thoughts?

 

Leave it alone

[BG2008]

New highs again, this one is working out much better than I thought.  The more over valued it becomes, it could potentially be more under valued.  It's a weird feeling being a value investors at these prices.  My rational brains tells me I should keep taking chips off the table.  My trading instinct tells me that momo begets more momo and this is exactly why companies go public so that they can exploit low WACC to grow the business.  I am a little bit torn, but I should probably just leave this one alone. 

 

Thoughts?

 

Leave it alone

 

What's your position size?

[BG2008]

I swear there is an AI bot or some sort of algo scraping CoB.  Everytime, I mention about selling or reducing my GRIF position, it trades lower.  Okay, I change my mind.  GRIF should trade at a 3% cap rate.  That's an implied share price of $112!  To the moon we go! 

[EricSchleien]

I swear there is an AI bot or some sort of algo scraping CoB.  Everytime, I mention about selling or reducing my GRIF position, it trades lower.  Okay, I change my mind.  GRIF should trade at a 3% cap rate.  That's an implied share price of $112!  To the moon we go!

 

If you like the asset and the management and the ability to use the stock at currency at above NAV or buybacks below - than holding it for 10 years will probably do better than trading it. Even if it doesn't work out - all you need is 1 out of 10 situations to do really spectacular to make more money than the other 9. I look at it like a lifetime basket approach.

[bilo]

EricSchieien, very smart. 

 

And for those who don't have the patience to think 10 years out,  it will get to $100 faster than you think. 

[BG2008]

EricSchieien, very smart. 

 

And for those who don't have the patience to think 10 years out,  it will get to $100 faster than you think.

 

Well, the sentiments on this board has certainly changed

[Spekulatius]

I don’t think this #neversell will age well.

[realassetsvalue]

New highs again, this one is working out much better than I thought.  The more over valued it becomes, it could potentially be more under valued.  It's a weird feeling being a value investors at these prices.  My rational brains tells me I should keep taking chips off the table.  My trading instinct tells me that momo begets more momo and this is exactly why companies go public so that they can exploit low WACC to grow the business.  I am a little bit torn, but I should probably just leave this one alone. 

 

Thoughts?

 

I have been debating the same question. A good problem to have. Like you, I see two sides to the story...

 

On the one hand, the premium to NAV / WACC part of the equation is critical for REITs to grow and they've gotten there. They have a good track record of doing sensible deals that add value. They have what looks like a good quality, shovel-ready development pipeline, which sets them up to continue NOI growth at a good clip. They've made and are making transformative changes to the board, shareholder communications, etc. They'll be a REIT next year, be raising capital, increasing liquidity, maybe getting into an index or two at some point. Lots of positive momentum

 

On the other hand, the distribution warehouse sector is as hot as its ever been (in my time in the industry at least). Apart from some multifamily, its one of the only "no-brainer" investment for institutional and international investors out of the "big-4" real estate sectors. Everyone in the space is turning the taps on their speculative development pipeline wide open to respond to the exceptional demand for space we've seen during COVID. Griffin still owns a bunch of mediocre and poor quality office / flex and land in Connecticut and its hard to know what that's really worth. Development of warehouses isn't rocket science but it still entails a lot of work and carries risk. They still have a lot of wood to chop leasing up their recent developments. Building a team and scaling a business is hard and while Gordon DuGann has been there before, they may get it wrong.

 

It's particularly challenging to make a call when this ends up being one of your biggest positions... Stomaching the "let it ride" because you only need 1 of 10 to be a multibagger, a point of view that I get and intellectually agree with, is harder when its a big piece of your portfolio. For so many excellent investors, selling too early is the biggest mistake of commission they point to. For me it was a c.12% position before trimming and BG I know it is a relatively large position for you as well...

 

To keep myself honest down the line, my thinking is that NAV is about $72 a share. I decided to trim about 10% a week or so ago at $71.30 (obviously looks wrong already) and trimmed another 10% this week at $75. I think there's a chance I will look back and feel stupid for selling any amount but trimming a bit to put into other ideas at a discount to NAV helps me sleep well at night.

 

I also think there is a chance that there will be opportunities to buy at a better price relative to NAV. As part of my sell decision I wanted to be clear with myself where I will buy more (if I get the chance), which I think makes sense at a ~15% discount to NAV, which would be low $60s a share today or higher if they grow NAV. Maybe that's greedy but we will see!

 

Also at the end of the day, I've always been a sh*t trader so you should probably do the opposite of what I am doing =)

[BG2008]

New highs again, this one is working out much better than I thought.  The more over valued it becomes, it could potentially be more under valued.  It's a weird feeling being a value investors at these prices.  My rational brains tells me I should keep taking chips off the table.  My trading instinct tells me that momo begets more momo and this is exactly why companies go public so that they can exploit low WACC to grow the business.  I am a little bit torn, but I should probably just leave this one alone. 

 

Thoughts?

 

I have been debating the same question. A good problem to have. Like you, I see two sides to the story...

 

On the one hand, the premium to NAV / WACC part of the equation is critical for REITs to grow and they've gotten there. They have a good track record of doing sensible deals that add value. They have what looks like a good quality, shovel-ready development pipeline, which sets them up to continue NOI growth at a good clip. They've made and are making transformative changes to the board, shareholder communications, etc. They'll be a REIT next year, be raising capital, increasing liquidity, maybe getting into an index or two at some point. Lots of positive momentum

 

On the other hand, the distribution warehouse sector is as hot as its ever been (in my time in the industry at least). Apart from some multifamily, its one of the only "no-brainer" investment for institutional and international investors out of the "big-4" real estate sectors. Everyone in the space is turning the taps on their speculative development pipeline wide open to respond to the exceptional demand for space we've seen during COVID. Griffin still owns a bunch of mediocre and poor quality office / flex and land in Connecticut and its hard to know what that's really worth. Development of warehouses isn't rocket science but it still entails a lot of work and carries risk. They still have a lot of wood to chop leasing up their recent developments. Building a team and scaling a business is hard and while Gordon DuGann has been there before, they may get it wrong.

 

It's particularly challenging to make a call when this ends up being one of your biggest positions... Stomaching the "let it ride" because you only need 1 of 10 to be a multibagger, a point of view that I get and intellectually agree with, is harder when its a big piece of your portfolio. For so many excellent investors, selling too early is the biggest mistake of commission they point to. For me it was a c.12% position before trimming and BG I know it is a relatively large position for you as well...

 

To keep myself honest down the line, my thinking is that NAV is about $72 a share. I decided to trim about 10% a week or so ago at $71.30 (obviously looks wrong already) and trimmed another 10% this week at $75. I think there's a chance I will look back and feel stupid for selling any amount but trimming a bit to put into other ideas at a discount to NAV helps me sleep well at night.

 

I also think there is a chance that there will be opportunities to buy at a better price relative to NAV. As part of my sell decision I wanted to be clear with myself where I will buy more (if I get the chance), which I think makes sense at a ~15% discount to NAV, which would be low $60s a share today or higher if they grow NAV. Maybe that's greedy but we will see!

 

Also at the end of the day, I've always been a sh*t trader so you should probably do the opposite of what I am doing =)

 

Great analysis.  This is an experiment for me.  I am learning how to invest in growth companies.  The WACC advantage is very real.  The fact that they pulled it off is amazing.  Michael Gamzon keep surprising me.  Perhaps that is a tell tale sign that you should trust the process.  Like I say, I am running a bit of an experiment here as I write my thoughts out loud.  I did some thinking and I think I am going to try to ride this into a multi-bagger potential outcome. 

 

Perhaps one can simply hedge out the exposure by buying some puts in Prologis at 20-30% OTM.  It's a cost of doing business.

 

In short, Long and Strong GRIF. 

[villainx]

The main difference for me is that this is probably one of the first or at least few examples of a thesis playing out.  With a identifiable NAV or target price, ~70s.  And then having the company's stock hit it.  Normally I'm more growth or compounder oriented.

 

I guess I'm trying to factor how Dugan can help guide Gamzon to new heights.  Or ride the cycle tailwinds. Or if it's sustainable, I can put Grif in the income bucket of my portfolio.  Or to trim and be less regretful with run up or be ready to buy opportunistically. 

[BG2008]

I think at today's price, they can buy assets with a 5.5-6.0% yield, finance it with debt that probably cost 3% and equity that implies a high 4s cap rate.  Any sorts of issuance and acquisition/development creates a ton of value.  In RE investing, creating a 1.5-2.0% WACC to asset spread is a huge game changer!!! The market likely really likes Dugan's involvement which carries a ton of reflexivity.  There are also a few niche areas that they focus on that I tend to like.