GRIF - Griffin Industrial Realty

[villainx]

Was there no one asking questions for earning call or did the transcript I read got cut out?

 

Didn’t seem like a negative call.

[shhughes1116]

Was there no one asking questions for earning call or did the transcript I read got cut out?

 

Didn’t seem like a negative call.

 

I think it was pre-recorded.

[BG2008]

It's not exactly the GRIF thread without me posting another article. 

 

Retailers are hustling to find more space for goods before an expected crush of online orders this fall swamps already-strained logistics networks.

 

Companies expect online sales “to be one of their primary movers” in the fourth quarter, said Zach Thomann, executive vice president of online fulfillment provider PFS, a division of PFSWeb Inc. whose customers include cosmetics merchants Kiehl’s and Shiseido Co. and sports apparel brand Champion.

 

Merchants and brands that met with soaring e-commerce demand during lockdowns expect consumers to stick to online shopping as the coronavirus pandemic continues its grip on the U.S.

 

https://www.wsj.com/articles/the-rush-is-on-to-secure-holiday-season-warehouse-space-11596136191?mod=lead_feature_below_a_pos1

 

 

[vpagano]

Raising a little cash...

 

https://seekingalpha.com/news/3608375-griffin-raises-27_2m-via-equity-private-placement

[Gregmal]

Raising a little cash...

 

https://seekingalpha.com/news/3608375-griffin-raises-27_2m-via-equity-private-placement

 

Now that thats out of the way, this may be interesting again. Didnt like this overhang and always thought that over $50 was grounds to get shares dumped on your head. But I do like the direct PP to an institutional holder...instantly making themselves a large/meaningful shareholder in the company at a price higher than most probably own the shares at.

[BG2008]

Not the most favorable deals.  But agree with Gregmal that in the $50s, GRIF was subject to an equity raise.  The value purist in me would say "why bother raising equity at a discount to NAV"?  The pragmatist in me reminds me that I left a double on the table in CTRE because I couldn't overlook the fact that they raised equity at a discount.  Trading liquidity and institutional ownership issues are real.  Having an extra $27mm of cash which likely translate into $55mm of purchasing power means large scale and a more institutional quality REIT.  Sometimes you have to give up a bit of economic to get to where you want to go.  The warrants essentially means raising equity at $64 which is further dilution.  This is a step getting there and it involves some pain.  At one point, it made a lot of sense to buy back shares and further concentrate in Hartford land parcels on paper.  In practice, they have diversified the company and set it up to become a real company.  No one can argue that the company isn't in a better place due to management's past actions. 

 

This was likely Gordon Dugan calling up one of his buddies on the buyside and asking "Do you want to stick yourself in an illiquid small cap for a good deal?"  In a perfect world, this would have been a secondary offering with 80% institutional ownership, roadshow, research coverage, and 20% traders flipping their shares for a quick pop."  The flipping is important as it creates trading volume.  Despite the raging debate on Tesla and Appl splitting their shares, I think that GRIF splitting their shares would help.  Higher number of shares, smaller price, smaller bid/ask spreads.  It's a different story when you have a market cap of $2 trillion, stock splits is kind of meh.  But here, it could make a difference. 

[BG2008]

I actually hope that Cambiar would flip a little bit of their shares at a 10-20% profit so that we can improve the trading volume. 

[BG2008]

Thinking outloud, there is probably a deal on the horizon.  I'll wager $1 that they close something in the next 90 days. 

[thepupil]

Would I prefer $55/$60? Yes.

 

Am I okay with this? Yes.

 

Is this discount to NAV bagholder a bit too excited by the prospect of potentially owning an accretive issuance story? Yes.

[villainx]

So this is a necessary and positive step?  Hopefully in anticipation of some new interesting acquisition?

 

If I understand correctly , there's suppose to be an interesting distribution in conjunction to REIT conversion at this end of year?  I've hear mention of (edit: float, not capital!) liquidity issue, but I have to think that's not going to be an issue that much longer.  There's going to be a bunch of stock in the year end distribution and maybe some institutional holders don't like holding REITs?

 

How does environment in the 13/14/15 compare to now (excluding covid) as a comparison for how Gramercy and DuGan did?

[BG2008]

So this is a necessary and positive step?  Hopefully in anticipation of some new interesting acquisition?

 

If I understand correctly , there's suppose to be an interesting distribution in conjunction to REIT conversion at this end of year?  I've hear mention of liquidity issue, but I have to think that's not going to be an issue that much longer.  There's going to be a bunch of stock in the year end distribution and maybe some institutional holders don't like holding REITs?

 

How does environment in the 13/14/15 compare to know (excluding covid) as a comparison for how Gramercy and DuGan did?

 

If you are small and under the radar and want to build a real institutional shareholder base, yes, there is a price to pay.  Like Pupil said, would I prefer it at $60, of course.  Am I okay with the deal, yes.  Frankly, the CEO has earned the right for me to give him some slack.  Liquidity issues is related to trading liquidity, not actual cash liquidity.  Yes, the stock dividend will help with trading liquidity. 

[thepupil]

I do kind of understand why the offering came at $50. the guys  are buying 10% (maybe another 9% @ $60) / $25mm of a company that trades like $300K/ day. that's a big commitment for which they should be compensated and have some upside. it's not like our little positions where you can add aggressively below $40 and trim aggressively above $55 and re-risk/de-risk and make material changes to the position. they should get shares at a good price for becoming the top non insider shareholder with the least liquid position.

 

it's below 20% change in potential ownership so  it doesn't require a vote and gets done with certainty. I'd also note that I think it's a good they didn't have to offer some kind of convertible pref structure or other protected type of security often granted to PIPE investors at this end of the market cap/liquidity spectrum. It's just plain old common equity at similar terms to the prevailing share price.

 

if you think NAV is $70, then issuing 10% of shares at $50 and possibly 10% at $64 (with the warrant premium), dilution isn't all that much, and it also is a nice de-risking event / crystallization of shares purchased at far cheaper prices. Again assuming $70, NAV goes to a more certain $68. If you thought NAV was $60, then pro-forma NAV is $59.1, hardly material dilution. Issuance at $64 is also not bad if the stock goes higher w/i 3 years and the warrants are exercised.

 

 

 

 

[BG2008]

I do kind of understand why the offering came at $50. the guys  are buying 10% (maybe another 9% @ $60) / $25mm of a company that trades like $300K/ day. that's a big commitment for which they should be compensated and have some upside. it's not like our little positions where you can add aggressively below $40 and trim aggressively above $55 and re-risk/de-risk and make material changes to the position. they should get shares at a good price for becoming the top non insider shareholder with the least liquid position.

 

it's below 20% change in potential ownership so  it doesn't require a vote and gets done with certainty. I'd also note that I think it's a good they didn't have to offer some kind of convertible pref structure or other protected type of security often granted to PIPE investors at this end of the market cap/liquidity spectrum. It's just plain old common equity at similar terms to the prevailing share price.

 

if you think NAV is $70, then issuing 10% of shares at $50 and possibly 10% at $64 (with the warrant premium), dilution isn't all that much, and it also is a nice de-risking event / crystallization of shares purchased at far cheaper prices. Again assuming $70, NAV goes to a more certain $68. If you thought NAV was $60, then pro-forma NAV is $59.1, hardly material dilution. Issuance at $64 is also not bad if the stock goes higher w/i 3 years and the warrants are exercised.

 

This excellent summary.  Sometimes we forget the benefit of being small.  Many investors cite lack of liquidity as an issue for getting out of a position when you are wrong.  It hurts you equally hard when lack of liquidity results in inability to average down.  I own some Excelsior Capital which is a net-net that pays a dividend.  The inability to buy more when it traded to 1.15-1.20 this year was very frustrating.  But if you want to scoop up $2,000-10,000 worth of stock, it is much more manageable. 

[bilo]

I'd assume they wouldn't bother if they didn't feel they could ultimately engineer a cost of capital advantage due to trading over NAV as a REIT, no other reason a controlled co. clearly thinking of long term value creation would do this.  If it works (as someone else said earlier) it could be a really nice ride.

[BG2008]

Rent collection of 99.9%

 

http://www.griffinindustrial.com/about/news-events/griffin-announces-fiscal-2020-q3-leasing-updates-on-rent-collection

 

Domino's renewed their lease for 40,000 sqft, Wayfair renewed 39,000 sqft

 

Overall warehouse is 94.3% leased and 99.7% leased for stabilized properties

 

Office/flex is suffering, but not meaningful anymore

 

Leasing done at 8.1% cash basis rent growth (maybe 3.1%, shows 2 different numbers, 1 is wrong)

 

[BG2008]

https://www.wsj.com/articles/amazon-to-hire-100-000-in-u-s-and-canada-11600071208?mod=business_lead_pos3

 

Warehouses are pretty unstoppable at the moment.  I think this trend goes longer than people think.  Roughly a 6.5% cap rate for the warehouse portfolio after netting out the NPV of the land portfolio.  Market is probably closer to high 4s to low 5% cap rate for a very well received asset class.  There are obvious ramps in IR efforts going forward.  This is slowly becoming more institutional quality.

[realassetsvalue]

Additional private market portfolio comps - some similar in size to the GRIF portfolio but arguably better markets - over the last month:

 

August 28: PGIM Real Estate has acquired a 4.7-million-square-foot, 15-building industrial portfolio, located across eight properties in Atlanta, Dallas, Denver, Fort Worth and Phoenix, for $425 million. All 15 buildings in the portfolio are newly constructed or still under construction: https://www.connect.media/pgim-real-estate-grows-industrial-holdings-with-425m-deal/

 

September 23: PGIM Real Estate has acquired a 30-property industrial portfolio totaling 5.4 million square feet valued at approximately $700 million by recapitalizing an interest in the existing joint venture structure. Located across Los Angeles, the Greater Chicago area, Seattle, Dallas-Fort Worth, and Louisville, the portfolio is 97% leased: https://www.connect.media/pgim-real-estate-adds-30-property-industrial-portfolio/

 

First deal is ~$90 PSF and 2nd is ~$130 PSF. LA and Seattle are definitely much better / higher-priced markets so that comp has to be taken with a grain of salt. On the first comp, some of portfolio not being completed yet means arguably lower than would be applicable to GRIF.

 

By my math, if the GRIF industrial portfolio is worth $110 PSF, that implies a share price of ~$60 if you think the other RE and land is worthless. Increases to ~$68 based on my ballapark valuation of the land / other RE of ~$40m.

 

Feels like still a reasonable discount to private market NAV today with potential upside from deploying the equity they raised into their development pipeline.

[BG2008]

Additional private market portfolio comps - some similar in size to the GRIF portfolio but arguably better markets - over the last month:

 

August 28: PGIM Real Estate has acquired a 4.7-million-square-foot, 15-building industrial portfolio, located across eight properties in Atlanta, Dallas, Denver, Fort Worth and Phoenix, for $425 million. All 15 buildings in the portfolio are newly constructed or still under construction: https://www.connect.media/pgim-real-estate-grows-industrial-holdings-with-425m-deal/

 

September 23: PGIM Real Estate has acquired a 30-property industrial portfolio totaling 5.4 million square feet valued at approximately $700 million by recapitalizing an interest in the existing joint venture structure. Located across Los Angeles, the Greater Chicago area, Seattle, Dallas-Fort Worth, and Louisville, the portfolio is 97% leased: https://www.connect.media/pgim-real-estate-adds-30-property-industrial-portfolio/

 

First deal is ~$90 PSF and 2nd is ~$130 PSF. LA and Seattle are definitely much better / higher-priced markets so that comp has to be taken with a grain of salt. On the first comp, some of portfolio not being completed yet means arguably lower than would be applicable to GRIF.

 

By my math, if the GRIF industrial portfolio is worth $110 PSF, that implies a share price of ~$60 if you think the other RE and land is worthless. Increases to ~$68 based on my ballapark valuation of the land / other RE of ~$40m.

 

Feels like still a reasonable discount to private market NAV today with potential upside from deploying the equity they raised into their development pipeline.

 

Thanks for the comps.  One of the things to keep in mind is that larger footprints tend be cheaper to build.  The average size is over 300k sqft for the $90/sqft portfolio 4.7mm sqft dividend by 15 buildings.  Griffins is about 50-60% of that if I remember correctly.  People under estimate how valuable LeHigh Valley is.  Aside from Seattle and LA, it is more valuable than the other markets that you mentioned.

[BG2008]

Not a great comp, but this 10,000 sqft warehouse in Maspeth NY just changed hands for $455/sqft. 

 

https://www.instagram.com/p/CFuSdabDu5_/

 

It is very well located from a logistic perspective and probably has some option value as a MF development in the future

 

VNO is trading at about $150/sqft more than this

[thepupil]

Not a great comp, but this 10,000 sqft warehouse in Maspeth NY just changed hands for $455/sqft. 

 

https://www.instagram.com/p/CFuSdabDu5_/

 

It is very well located from a logistic perspective and probably has some option value as a MF development in the future

 

VNO is trading at about $150/sqft more than this

 

well there certainly is a world where the opex and taxes of owning huge underutilized buildings makes them have value lower than industrial, but I hear your point. 

 

I get $660 / foot at share for VNO:

 

Core NYC: 13.9

NYC Retail: 1.4

Farley      : .84

Other dev.: 1.3 <--mostly Penn

555 at share: 1.26

theMart      : 3.7

TS U5th at share: 0.44

22.9mm sf at share

 

EV = $15.1B

EV/ foot = $660

 

If I include the JV retail pref as an owned financial instrument, then I get $580/foot.

[BG2008]

The narrative is quickly shifting from "This is being run for the family" to "We are going to host webcast and go to NAREIT conferences"

 

http://www.griffinindustrial.com/about/news-events/griffin-announces-upcoming-investor-events

 

Q3 Earnings Webcast on October 9th and Virtual Investor Day on November 11th

 

Wow

 

I am totally biased, maybe there is an easy $15 to be made here as it trades from $55 to the $70 NAV.

 

 

[BG2008]

Bid/Ask is $55 and $60.67.  There is a chance, this thing can just "GAP UP" as more investor buy into the thesis.  If GRIF trades to $70, I want a "Tony Romo Play-By-Play Broadcast Award." 

 

 

[BG2008]

Bid/Ask is now $56.10/$61.28.  This New England Patriot team is just methodically marching down the field. 

[Gregmal]

Bid/Ask is now $56.10/$61.28.  This New England Patriot team is just methodically marching down the field.

 

$4 a share higher from last week's "I'm being a cheapskate and waiting for high $40's". Today I say "Ill wait til low 50s to jump back in"....funny how that works. I'm still probably better of just rebuying. Same shit happened with JOE although I at least own a bit there. Some of the RE stuff is beginning to look a little perky.

[BG2008]

Bid/Ask is now $56.10/$61.28.  This New England Patriot team is just methodically marching down the field.

 

$4 a share higher from last week's "I'm being a cheapskate and waiting for high $40's". Today I say "Ill wait til low 50s to jump back in"....funny how that works. I'm still probably better of just rebuying. Same shit happened with JOE although I at least own a bit there. Some of the RE stuff is beginning to look a little perky.

 

What the heck happened with JOE today?