GRIF - Griffin Industrial Realty

[BG2008]

I think this is important because the 6975 Ambassador Drive in the Lehigh Valley was a spec building completed in Q4 2018.  It has taken a bit longer to lease up than previous spec buildings.  Now that it is 48% leased, it significantly de-risk the investment.  If GRIF can get to 80-90% leased, then they can put a 60% LTV non-recourse mortgage on it and take out some capital (likely $7-8mm of mortgage) and they can rinse and repeat the process.  The leasing of 74,000 sqft in Charlotte, NC is great news because Charlotte, NC is typically a market where you have to build it before people will consider leasing the space type of market.  Hence, GRIF has already leased 26% of the spec building when the building is not expected to be finished till Q4 2019.  One thing that I have been consistently surprised by is their ability to develop and lease spaces in the last 5 years.  It is likely a combination of timing, good GDP growth, structural trends of retail-to-warehouse, and decent underwriting/development by the management team.  Interest rate cuts is likely bullish for the company.  Keeps chugging along. 

[Deepdive]

Seems like a little bit of delayed reaction to the leasing news from a couple days ago?  Fairly elevated volume in the last 4 days at 2-4x of normal daily volume.  A fund trying to accumulate a position? 

[Gregmal]

Seems like a little bit of delayed reaction to the leasing news from a couple days ago?  Fairly elevated volume in the last 4 days at 2-4x of normal daily volume.  A fund trying to accumulate a position?

 

There was supposedly some quadruple witching or whatever today. I noticed quite a few companies, particularly RE ones that got massive volume surges in the last half hour or so of trading.

[Deepdive]

Seems like a little bit of delayed reaction to the leasing news from a couple days ago?  Fairly elevated volume in the last 4 days at 2-4x of normal daily volume.  A fund trying to accumulate a position?

 

There was supposedly some quadruple witching or whatever today. I noticed quite a few companies, particularly RE ones that got massive volume surges in the last half hour or so of trading.

 

What the heck is a quadruple witching?

[SoonParted]

Seems like a little bit of delayed reaction to the leasing news from a couple days ago?  Fairly elevated volume in the last 4 days at 2-4x of normal daily volume.  A fund trying to accumulate a position?

 

There was supposedly some quadruple witching or whatever today. I noticed quite a few companies, particularly RE ones that got massive volume surges in the last half hour or so of trading.

 

What the heck is a quadruple witching?

 

It's when the Bilderberg Group meets with the Wicked Witches of the East, West, North, and South.

 

OK, triple witching is this, quadruple is presumably similar:  "Triple witching is the quarterly expiration of stock options, stock index futures and stock index option contracts all occurring on the same day. It happens four times a year - on the third Friday of March, June, September and December."

[Deepdive]

Seems like a little bit of delayed reaction to the leasing news from a couple days ago?  Fairly elevated volume in the last 4 days at 2-4x of normal daily volume.  A fund trying to accumulate a position?

 

There was supposedly some quadruple witching or whatever today. I noticed quite a few companies, particularly RE ones that got massive volume surges in the last half hour or so of trading.

 

Which other companies had massive volume surges in the last half hour?  Lately, it feels like value is actually working.

[Gregmal]

Seems like a little bit of delayed reaction to the leasing news from a couple days ago?  Fairly elevated volume in the last 4 days at 2-4x of normal daily volume.  A fund trying to accumulate a position?

 

There was supposedly some quadruple witching or whatever today. I noticed quite a few companies, particularly RE ones that got massive volume surges in the last half hour or so of trading.

 

Just from what I had on the watch list I noticed similar price or volume action in JOE, FRPH, CTO, TRC, GRIF in the last 15-30 minutes of trading. Don't know if its related or not but we'll see on Monday if there is follow through.

 

Which other companies had massive volume surges in the last half hour?  Lately, it feels like value is actually working.

[BG2008]

GRIF has traded at about 3x normal daily volume since Sep 18th.  Maybe this one is less Quadruple Witching and more of the investor base starting to understand the thesis and the degree of undervaluation.  The four day trading volume is not important to the long term thesis.  But I suspect that more funds/institutional investors are getting into the name lately.  I hope that they are taking some of the Gabelli/Family shares so that GRIF over time will trade with a $1mm daily liquidity.  It doesn't matter for guys on CoBF, but it doe matter for the small cap value funds that wants a $2-3mm position. 

[Cardboard]

I just looked at this thing and if you apply a 6% to NOI (including all G&A for which a lot would disappear upon a privatization), I get $525 million for EV. Does that sound right?

 

If so, then this thing is awfully cheap.

[BG2008]

What's the NOI that you are using and land value?  You're in the right ballpark, maybe on the higher range of valuation.  As time goes on, the value should increase each year. 

[Cardboard]

Sorry, I realized I screwed up... It is half of what I mentioned or $263 million.

[BG2008]

That's quite the drop off, what changed in your assumptions? 

[Cardboard]

6 month revenues minus rental expenses minus G&A but, accidentally multiplied by 4 instead of 2 to annualize... So my NOI was double what it really is.

 

[vpagano]

New line of credit >

 

https://stocknewsnow.com/companynews/5999328873261783/GRIF/101843

[thepupil]

Another day, another Griffin transaction comp at a ~4.2%/cap?  $62*4= 248, 248/5900 = 4.2% $106 / foot ($5900/55.7 = $105.9)

 

Not sure if there's some more complicated math making those metrics wrong, but it seems like another very positive print for GRIF. To be clear, I don't think that GRIF has

one of the highest quality portfolios of last-mile logistics assets in the U.S.

as this claims to be, but at $316mm enterprise value on its way to $25mm+ NOI, one need not think that this will trade there to get a good return.

 

http://ir.clny.com/static-files/fb172b46-7cd3-441b-86e0-60187e4f7972

During the second quarter 2019, this segment’s net loss attributable to common stockholders was $(3.1) million, Core FFO was $11.9 million and consolidated NOI was $62.2 million

 

http://ir.clny.com/news-releases/news-release-details/blackstone-buy-us-logistics-assets-colony-capital-59-billion

 

 

 

[Gregmal]

https://markets.businessinsider.com/news/stocks/griffin-announces-agreement-for-building-acquisition-1028587151

 

Awful lot of disclosure.

[vpagano]

https://www.bamsec.com/filing/155837019008860?cik=1037390

 

The 10-Q is also out today, some subsequent event color:

 

9.    Subsequent Events

 

 

 

In accordance with FASB ASC 855, “Subsequent Events,” Griffin has evaluated all events or transactions occurring after August 31, 2019, the balance sheet date, and noted that there have been no such events or transactions which would require recognition or disclosure in the consolidated financial statements as of and for the period ended August 31, 2019, other than the disclosures herein.

 

 

 

On September 5, 2019, Griffin entered into an agreement to sell all real estate assets of the Florida Farm previously used by Imperial Nurseries, Inc. prior to being shut down in fiscal 2009 for a purchase price of $2,300 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is not expected to take place until fiscal 2020. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

 

 

On September 11, 2019, Griffin entered into an agreement to sell the approximately seven acres of undeveloped land in Windsor, Connecticut for a purchase price of $750 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the fiscal 2020 first quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

 

 

Also on September 11, 2019, Griffin entered into an agreement to sell the Restaurant Building for a purchase price of $650 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the 2019 fourth quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

 

 

On September 19, 2019, Griffin and Webster Bank entered into a new $15,000 Acquisition Credit Line to be used to finance property acquisitions (see Note 5). Also on  September 19, 2019, Griffin and Webster Bank executed the Revolving Credit Line Amendment to the Webster Credit Line that increased the amount of the Webster Credit Line to $19,500 and extended the Webster Credit Line through September 30, 2021 (see Note 5).

 

 

 

On September 27, 2019, Griffin entered into an agreement to acquire an approximately 100,000 square foot fully leased industrial/warehouse building in Orlando, Florida (the “Orlando Building”) for $10,150 to be paid in cash at closing. This would be Griffin’s first industrial/warehouse building in the Orlando area. Griffin intends to finance the purchase of the Orlando Building using the Acquisition Credit Line and cash on hand. Closing on the purchase of the Orlando Building is subject to the satisfactory completion of due diligence by Griffin. There is no guarantee that this transaction will be completed under its current terms, or at all.

[Gregmal]

https://www.bamsec.com/filing/155837019008860?cik=1037390

 

The 10-Q is also out today, some subsequent event color:

 

9.    Subsequent Events

 

 

 

In accordance with FASB ASC 855, “Subsequent Events,” Griffin has evaluated all events or transactions occurring after August 31, 2019, the balance sheet date, and noted that there have been no such events or transactions which would require recognition or disclosure in the consolidated financial statements as of and for the period ended August 31, 2019, other than the disclosures herein.

 

 

 

On September 5, 2019, Griffin entered into an agreement to sell all real estate assets of the Florida Farm previously used by Imperial Nurseries, Inc. prior to being shut down in fiscal 2009 for a purchase price of $2,300 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is not expected to take place until fiscal 2020. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

 

 

On September 11, 2019, Griffin entered into an agreement to sell the approximately seven acres of undeveloped land in Windsor, Connecticut for a purchase price of $750 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the fiscal 2020 first quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

 

 

Also on September 11, 2019, Griffin entered into an agreement to sell the Restaurant Building for a purchase price of $650 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the 2019 fourth quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

 

 

On September 19, 2019, Griffin and Webster Bank entered into a new $15,000 Acquisition Credit Line to be used to finance property acquisitions (see Note 5). Also on  September 19, 2019, Griffin and Webster Bank executed the Revolving Credit Line Amendment to the Webster Credit Line that increased the amount of the Webster Credit Line to $19,500 and extended the Webster Credit Line through September 30, 2021 (see Note 5).

 

 

 

On September 27, 2019, Griffin entered into an agreement to acquire an approximately 100,000 square foot fully leased industrial/warehouse building in Orlando, Florida (the “Orlando Building”) for $10,150 to be paid in cash at closing. This would be Griffin’s first industrial/warehouse building in the Orlando area. Griffin intends to finance the purchase of the Orlando Building using the Acquisition Credit Line and cash on hand. Closing on the purchase of the Orlando Building is subject to the satisfactory completion of due diligence by Griffin. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

Thanks. Im out of town and going by my Fidelity mobile feed. Thought there had to be more than just that flimsy release.

[Deepdive]

https://www.bamsec.com/filing/155837019008860?cik=1037390

 

The 10-Q is also out today, some subsequent event color:

 

9.    Subsequent Events

 

 

 

In accordance with FASB ASC 855, “Subsequent Events,” Griffin has evaluated all events or transactions occurring after August 31, 2019, the balance sheet date, and noted that there have been no such events or transactions which would require recognition or disclosure in the consolidated financial statements as of and for the period ended August 31, 2019, other than the disclosures herein.

 

 

 

On September 5, 2019, Griffin entered into an agreement to sell all real estate assets of the Florida Farm previously used by Imperial Nurseries, Inc. prior to being shut down in fiscal 2009 for a purchase price of $2,300 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is not expected to take place until fiscal 2020. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

 

 

On September 11, 2019, Griffin entered into an agreement to sell the approximately seven acres of undeveloped land in Windsor, Connecticut for a purchase price of $750 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the fiscal 2020 first quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

 

 

Also on September 11, 2019, Griffin entered into an agreement to sell the Restaurant Building for a purchase price of $650 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the 2019 fourth quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

 

 

On September 19, 2019, Griffin and Webster Bank entered into a new $15,000 Acquisition Credit Line to be used to finance property acquisitions (see Note 5). Also on  September 19, 2019, Griffin and Webster Bank executed the Revolving Credit Line Amendment to the Webster Credit Line that increased the amount of the Webster Credit Line to $19,500 and extended the Webster Credit Line through September 30, 2021 (see Note 5).

 

 

 

On September 27, 2019, Griffin entered into an agreement to acquire an approximately 100,000 square foot fully leased industrial/warehouse building in Orlando, Florida (the “Orlando Building”) for $10,150 to be paid in cash at closing. This would be Griffin’s first industrial/warehouse building in the Orlando area. Griffin intends to finance the purchase of the Orlando Building using the Acquisition Credit Line and cash on hand. Closing on the purchase of the Orlando Building is subject to the satisfactory completion of due diligence by Griffin. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

I like the land sales.  GRIF is converting non-income producing assets into warehouses.  $3.7mm of cash proceeds that they can redeploy elsewhere.  Even if the swap is value neutral, the market will assign value to the warehouses.  Orlando is likely a beach head deal.  I expect more deals to come there. 

[writser]

Nice discussion. GRIF looks interesting. Still, hard to get very enthousiastic about a company that just filed an at-the-market offering prospectus, announced an 'acquisition credit line' at libor +2.75% and is pursuing a 'focused acquisition strategy' in an environment where, according to the latest company presentation "many buyers are reluctant to sell", implied industrial REIT cap rates are ~5% while their own stock is trading at an 8% cap rate, according to themselves.

 

Buying real estate at a 7.x% cap rate because it should trade at a 5.x% or 6.x% cap rate is not really my cup of tea - and I'm not an industrial real estate expert. I can see why others would like this. The discount to asset value is probably higher than management warrants. Concentrated owners will hopefully keep management in check while waiting for a buyout. I might change my mind.

[Gregmal]

Nice discussion. GRIF looks interesting. Still, hard to get very enthousiastic about a company that just filed an at-the-market offering prospectus, announced an 'acquisition credit line' at libor +2.75% and is pursuing a 'focused acquisition strategy' in an environment where, according to the latest company presentation "many buyers are reluctant to sell", implied industrial REIT cap rates are ~5% while their own stock is trading at an 8% cap rate, according to themselves.

 

Buying real estate at a 7.x% cap rate because it should trade at a 5.x% or 6.x% cap rate is not really my cup of tea - and I'm not an industrial real estate expert. I can see why others would like this. The discount to asset value is probably higher than management warrants. Concentrated owners will hopefully keep management in check while waiting for a buyout. I might change my mind.

 

Look at what the cat dragged in!

 

All jokes aside, I think you touch on what really needs to be the main area management focuses on clarifying, if they are serious about getting a better valuation... the market is at 5 cap, they're implied value is an 8, AND they are out there looking to be buyers. So it's twofold. One, That they are doing what most managers look to do, grow the size of the company via more acquisitions(not good or bad, thats not the nature of my comment here and a debate for later maybe), and two, making a macro call on these assets. Either one of those items goes against them, it could be problematic. I'd rather they take the approach and hedging one and two, while at the same time doing something that gives investors a little more reassurance; IE selling some of the assets. Essentially, what's the best way to maximize value creation?

 

a) borrowing money/issuing shares to buy/build more warehouses

b) selling a few slivers of company assets at markets rates

 

A) is still at best a longer term build in a competitive market(I'm not sure I love competing in Orlando for industrial....)

B) likely brings in some capital on the asset sale, highlights the discount to the rest of the assets, and also probably removes some of the management discount the market is assigning. Then if you want to issue shares, you can do so at $60 rather than $40.

 

[Gregmal]

Fireworks in the warehouse today huh?

[Spekulatius]

Fireworks in the warehouse today huh?

 

I guess Mr Market doesn’t like the newest acquisition. Inquiring minds may want to know why they are expanding in new geographic area, it only makes sense, if they do more deals there or start to develop. With their smallish size, it seems to make more sense to stay closer to home and add bulk to the areas, where they have already a presences (PA, CT). In any case, we can take it a s sign that they have no plans of selling out  soon.

[Mephistopheles]

After BG2008's mention of GRIF on the Macy's board, I did some research and just bought some shares, as a small tracking position.

 

Can someone recommend a good primer or industry guide for warehouse REITs?

 

 

[thepupil]

Don't have any primers. Blackstone is a notable aggressive buyer in the private market (and the public to private market). Recent Bloomberg article below.

 

I have not performed a comprehensive peers analysis but suffice to say the public market loves industrial real estate. PLD trades for 32x 2019 EV/EBITDA. and 29x 2020 EV/EBITDA

 

Relevant Peers FFO multiples: First Industrial Realty Trust (22x FFO), Duke Realty Trust (22.5x FFO), EastGroup Properties(24.5x FFO), STAG Industrial (16x FFO), Prologis (26.0x FFO). Less meaningful but the group trades for an average of 2.6% divvy yield and 40x PE.

 

So just using the publics and the private acquisition activity there is evidence that capital markets conditions for this asset class are somewhere between "optimistic" and "ebullient/bubblicious".

 

But you probably already knew that and are asking for a primer to figure out why might GRIF's footage and NOI be worth substantially less than those folks or if all that optimism could lead to oversupply. I'm not in possession of that knowledge or the time to figure that out. In the absence of a primer, you can check out sell side notes/transcripts/filings of the public peers.

 

Blackstone Expands Industrial Empire Further

Additional Intelligence on this Topic: Warehouse M&A May Need PE Push

Lindsay Dutch | BIO »

Team: REITs

BI Industry Analyst

Blackstone's $6 Billion Colony Deal Stacks Up Warehouse Rivalry

(Bloomberg Intelligence) -- Blackstone is building a U.S. warehouse portfolio that could rival industrial REIT Prologis in size, raising its bet that robust warehouse demand -- aided by rapid e-commerce growth -- isn't slowing any time soon. The private equity firm plans to spend $5.9 billion to buy Colony Capital's industrial assets and operating platform by year-end. (09/30/19)

 

1. Blackstone U.S. Warehouse Portfolio May Rival PrologisReturn to Top

Prologis' Portfolio Towers Over REIT Peers

Source: Company Filings, Bloomberg Intelligence

Exhibit

Blackstone's planned acquisition of Colony Capital's industrial real estate assets and operating platform for $5.9 billion comes just a few days after the private-equity firm completed an $18.7 billion purchase of GLP's warehouse assets. This extends a multiyear M&A streak and could help Blackstone create a U.S. portfolio rivaling the size of industrial REIT giant Prologis. Prologis has relied on M&A to build its expansive global portfolio, which totals over 780 million sq. ft, 59% of which is in the U.S.

Blackstone may eventually take its U.S. warehouse portfolio public, as it did with Invitation Homes, the largest single-family REIT, in 2017 and Brixmor, the second-largest owner of open-air strip centers, in 2013. Such a move could jostle the large industrial REIT lineup, which spans a wide range of portfolio sizes. (09/30/19)

 

2. 2018-19 Deals Exceed 360 Million Square FeetReturn to Top

Blackstone Colony Deal Extends Acquisition Streak

Source: Bloomberg

Exhibit

Blackstone will add 60 million square feet of warehouses, including exposure to coveted northern New Jersey and California, with its almost $6 billion deal with Colony Capital. This marks Blackstone's third transaction of more than $5 billion in the past year, following the 2019 purchase of GLP's U.S. warehouses ($18.7 billion) and the October 2018 acquisition of Gramercy Property Trust ($7.6 billion), which added more than 250 million sq. ft. combined. Though Blackstone may sell pieces of these portfolios, the three aggregate to about double industrial REIT Duke Realty's 158 million sq. ft.

Blackstone's 2018-19 U.S. warehouse acquisitions -- including Colony and smaller deals for Canyon Industrial and Pure Industrial -- will add over 360 million sq. ft. to its growing portfolio vs. Prologis' 461 million sq. ft. in the U.S. (09/30/19)