GRIF - Griffin Industrial Realty

[BG2008]

Some new thoughts

 

1) 7.1% that changed hands in the last few days is very meaningful.  It is likely Gabelli selling because one of their SMAs pulled their capital and gave them instruction to sell.  It's that or the family.  On the surface, Gabelli or family selling is negative.  But GRIF won't work in the long run without a widely held shareholder bases.  This is moving the needle towards that direction.  It is interesting to think that someone is confident enough to buy a 7% block from a shareholder who has owned it for over 10 years.  Usually that scares people due to lack of history and knowledge.  But the upside has to be compelling enough from the buyer's perspective. 

 

2) I talked to some industry folks.  Key takeaway is that Lehigh is $140/sqft for the newer products.  Charlotte is likely $85/sqft and Hartford is probably in the $90-$100.  Blended basis, you get a $100/sqft for the portfolio.  Industrial guys love Allentown in Lehigh Valley as it is so close to NYC and the MidAtlantic area.  Developers are paying $55-$60/sqft just for develop able land.  So

 

$140*1.3 = $182mm

$95*2.0 = $190mm

$85 * 0.56 = $47mm

Total warehouse value = $419mm based on a combined basis

Add in $25mm for the office building

Add in $60mm for the land parcels you have $504mm of gross asset value

 

Less $130mm of net debt and the implied equity value is $374mm divided by 5.1mm shares is $73 per share.  You can handicap it as much as you want.  There is a gap there somewhere. 

 

3) Will the family sell?  I think so.  I've gotten to know the family well.  If they get a good price, I think they are sellers.   

 

4) Why do they continue to buy and develop warehouses?  This one may take longer and draws from lots of my experience in CTO and CTRE.  When David Winters went activist on CTO, I thought that the asset will be sold.  The company did put CTO up in a process. Winters accused management that the process was half assed.  The reality is "Who wants to come in and own a few thousands of acres in what is widely perceived to be "white trash" land in Daytona Beach?"  Everytime I bring up Daytona Beach to a Florida native, they cringe.  Just saying.  It will be easier to sell CTO in its current form in 2019.  I got involved with CTRE and did very well during their spinoff. 40% in 6 months and it was a large position.  Then they went out and did an equity offering.  At the time I was pissed.  But then CTRE lowered their leverage and shares have gone from $12 to $24 and they have paid a bunch of dividends.  So that was boneheaded of me.  (Hope this doesn't get me in trouble) But the "Value Diehard" in me prevented me from seeing the potential benefit of the equity offering.  Speaking of great contributors.  KrazeeNYC explained to me at the time that first CTRE had a ton of concentration in their tenant base in Ensign, high leverage, and a concentrated shareholder base.  The equity offering was a price they had to pay to diversify their asset bases as the proceeds allowed them to delever, diversify via acquisitions, and build out a long term shareholder base.  I think value investors get way too drawn into "if it's cheap, why not buyback shares?  Why not shut down the business?  Why not wave the white flag and just go home."  I think this is the right strategy when you have an incompetent management team and there is no chance of winning when competing against someone like Amazon.  GRIF could've bought back shares in 2011-2014.  They would have been heavily concentrated in Hartford CT.  Instead they diversified wisely outside of Hartford into Lehigh Valley, Charlotte, and now Orlando.  If you are a big shareholder, like the Family is, you care about permanent impairment.  Most of us own single digit % of GRIF in our portfolio, but the family own something like $80-90mm of stock with a fair value of $160-180mm.  They care about long term impairment.  They need to diversify the holdings which frankly makes GRIF more attractive.  Which leads me to my speculation:

5) They are buying and developing warehouses because the proceeds of the land sale needs to be recycled.  They are earning a decent return.  Look at their Lehigh deal.  The Charlotte deal was a homerun.  They bought at $65 a sqft and it's now worth $85.  I think GRIF family is taking a 2 prong approach.  First they are converting all this cats and dog assets into a single desirable income producing asset type, warehouses.  Just look at all the industrial REIT peers.  The market loves them.  They are not doing some mix bag of NNN and offices and low cap rate land plays etc.  Over time, it becomes a simple and easy to understand product.  This is turning flour, yeast, and water into bread that institutional buyers will buy.  Second, they are also creating a portfolio that maybe coveted by Private Equity, Blackstone, or the public REITs.  As they continue to sell nursery and land parcels, they become more attractive as 1) A growth oriented public REIT or 2) as a take out target by any of the parties that I mentioned. 

6) I think I'm onto something, but maybe I am too "dense" and too "dumb" for my own good

7) I bought more at a hair under $36 

8) For those that don't know much about the industrial space just Google "Blackstone" and "Warehouse Acquisitions". 

[Gregmal]

I think Gabelli and/or the family overhang is overrated. Much like with Winters and his stake, when he sells, he sells. Its doesn't effect the IV, just the market value on a temporary and usually very brief basis; something those patient with with open time horizon can actually take advantage of. However the flip side to that is your risk of unknowingly transferring ownership from one shareholder with a very long holding period and mediocre IRR, to another future long term shareholder with a mediocre IRR---if you get my drift. Thats where there needs to be some caution.

 

 

BG- if I were in your shoes in regards to position size(you never know, I may join you soon here!) I would press these guys very hard to at the least, withdraw the ATM. Its a very bad look and if they're not using it, why have this unsightly blemish? It's an easy way to make a goodwill gesture to the market.

 

And yea, these things take a while, thats an understatement. Even the ones everything thinks will be quick, and by all accounts should be, take forever, cough NYRT.....thankfully I never bought it. Too much of a real estate value guy consensus it seemed, to me at least. I need some hair/controversy/uncertainty to get happy about something. GRIF has that.

 

[BG2008]

Gregmal,

 

I have spoken to them about the ATM.  They are not using it but do not want to withdraw it.  I think every shareholder should tell the management your thoughts on it.  It's a head scratcher and gets an immediate negative reaction.  Just look at this thread.  Ha, NYRT.  At least we are working with 100% upside rather than the 20% upside that winded up becoming negative % for most people that I know. 

[BG2008]

Some new thoughts

 

1) 7.1% that changed hands in the last few days is very meaningful.  It is likely Gabelli selling because one of their SMAs pulled their capital and gave them instruction to sell.  It's that or the family.  On the surface, Gabelli or family selling is negative.  But GRIF won't work in the long run without a widely held shareholder bases.  This is moving the needle towards that direction.  It is interesting to think that someone is confident enough to buy a 7% block from a shareholder who has owned it for over 10 years.  Usually that scares people due to lack of history and knowledge.  But the upside has to be compelling enough from the buyer's perspective. 

 

2) I talked to some industry folks.  Key takeaway is that Lehigh is $140/sqft for the newer products.  Charlotte is likely $85/sqft and Hartford is probably in the $90-$100.  Blended basis, you get a $100/sqft for the portfolio.  Industrial guys love Allentown in Lehigh Valley as it is so close to NYC and the MidAtlantic area.  Developers are paying $55-$60/sqft just for develop able land.  So

 

$140*1.3 = $182mm

$95*2.0 = $190mm

$85 * 0.56 = $47mm

Total warehouse value = $419mm based on a combined basis

Add in $25mm for the office building

Add in $60mm for the land parcels you have $504mm of gross asset value

 

Less $130mm of net debt and the implied equity value is $374mm divided by 5.1mm shares is $73 per share.  You can handicap it as much as you want.  There is a gap there somewhere. 

 

3) Will the family sell?  I think so.  I've gotten to know the family well.  If they get a good price, I think they are sellers.   

 

4) Why do they continue to buy and develop warehouses?  This one may take longer and draws from lots of my experience in CTO and CTRE.  When David Winters went activist on CTO, I thought that the asset will be sold.  The company did put CTO up in a process. Winters accused management that the process was half assed.  The reality is "Who wants to come in and own a few thousands of acres in what is widely perceived to be "white trash" land in Daytona Beach?"  Everytime I bring up Daytona Beach to a Florida native, they cringe.  Just saying.  It will be easier to sell CTO in its current form in 2019.  I got involved with CTRE and did very well during their spinoff. 40% in 6 months and it was a large position.  Then they went out and did an equity offering.  At the time I was pissed.  But then CTRE lowered their leverage and shares have gone from $12 to $24 and they have paid a bunch of dividends.  So that was boneheaded of me.  (Hope this doesn't get me in trouble) But the "Value Diehard" in me prevented me from seeing the potential benefit of the equity offering.  Speaking of great contributors.  KrazeeNYC explained to me at the time that first CTRE had a ton of concentration in their tenant base in Ensign, high leverage, and a concentrated shareholder base.  The equity offering was a price they had to pay to diversify their asset bases as the proceeds allowed them to delever, diversify via acquisitions, and build out a long term shareholder base.  I think value investors get way too drawn into "if it's cheap, why not buyback shares?  Why not shut down the business?  Why not wave the white flag and just go home."  I think this is the right strategy when you have an incompetent management team and there is no chance of winning when competing against someone like Amazon.  GRIF could've bought back shares in 2011-2014.  They would have been heavily concentrated in Hartford CT.  Instead they diversified wisely outside of Hartford into Lehigh Valley, Charlotte, and now Orlando.  If you are a big shareholder, like the Family is, you care about permanent impairment.  Most of us own single digit % of GRIF in our portfolio, but the family own something like $80-90mm of stock with a fair value of $160-180mm.  They care about long term impairment.  They need to diversify the holdings which frankly makes GRIF more attractive.  Which leads me to my speculation:

5) They are buying and developing warehouses because the proceeds of the land sale needs to be recycled.  They are earning a decent return.  Look at their Lehigh deal.  The Charlotte deal was a homerun.  They bought at $65 a sqft and it's now worth $85.  I think GRIF family is taking a 2 prong approach.  First they are converting all this cats and dog assets into a single desirable income producing asset type, warehouses.  Just look at all the industrial REIT peers.  The market loves them.  They are not doing some mix bag of NNN and offices and low cap rate land plays etc.  Over time, it becomes a simple and easy to understand product.  This is turning flour, yeast, and water into bread that institutional buyers will buy.  Second, they are also creating a portfolio that maybe coveted by Private Equity, Blackstone, or the public REITs.  As they continue to sell nursery and land parcels, they become more attractive as 1) A growth oriented public REIT or 2) as a take out target by any of the parties that I mentioned. 

6) I think I'm onto something, but maybe I am too "dense" and too "dumb" for my own good

7) I bought more at a hair under $36 

8) For those that don't know much about the industrial space just Google "Blackstone" and "Warehouse Acquisitions".

 

Another data point to consider regarding management quality, if LeHigh is indeed a $140/sqft market for their assets.  The warehouses are worth $182mm today.  The total unlevered cost was $84mm.  That's $98mm of valued created on $84mm of gross investments.  The average equity invested during this time is roughly $20mm.  So they generated a 5x on the equity alone without taking into consideration the excess cashflow they generated.  Pretty awful results if you ask me!!! (sarcasm)

[johnny]

please attach trigger warnings to any future references to NYRT outside of the NYRT thread thanks in advance

[shhughes1116]

Discussion reminds me a little bit of Grammercy Property Trust.  GPT held a hodgepodge of assets after the GFC, and I seem to recall on the verge of bankruptcy also.  Gordon Dugan took over, and repositioned their portfolio over about five years.  Extended leases, purchased high-quality properties with below-market leases, and transitioned to almost 100% industrial properties.  Sold it at the end to Blackstone in what I thought was a pretty good deal for shareholders. 

 

Certainly seems like this could be happening here.  However, I don’t think they have someone of the caliber of Gordon Dugan.  And I also wonder if they can reposition these assets and then sell the collection while we are still at this...bubbalicious time...for industrial assets.

[Mephistopheles]

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.

 

8) For those that don't know much about the industrial space just Google "Blackstone" and "Warehouse Acquisitions". 

 

Thanks for these. Yes essentially I would like to know the total available square footage vs. demand. I know these are moving parts and the industry in on a secular rise, but I'm sure we will have an oversupply at some point given how heated the market is. I'm going to look through competitor reports and the Blackstone transactions to see what I can gauge.

 

Couple of questions

 

1. Where do we get a list of the tenants and sq footage? I see it in the Rhizome presentation but where is that from?

 

2. Your thoughts on "last mile" delivery warehouses vs. traditional warehouses? Next day delivery is the new thing that Amazon and others are offering and might well be standard in the future. I know that Lehigh Valley and CT are within several hour drive to NYC. But how will the competitive dynamics be with faster and faster shipping vs. say warehouses in Newark, NJ etc.

 

Edit: should say last mile for *same day delivery

[Gregmal]

My take on the above is that yea, there are some noted similarities displayed with the industrial market vs the self storage market. Think of it as institutional self storage. So I wouldn't be shocked if there are periods of oversupply and exuberance with regard to building, and then subsequent market shakeouts or resets...part of this is why I dont really care for the idea of these guys going into Orlando. Stick with what you know and where you have resources. Dont become that incremental exuberant that gets in at the wrong time. But still, even if thats the case, I really dont care because you're not paying a whole lot anyway. There are a lot of instances with companies like this were the "what if something bad happens" scenario actually becomes a catalyst for something good. At 50% of NAV and a pretty confident inkling that downside in the worst cases in maybe 20-25%? I can live with this as a side piece in the margin account until dust settles or something stirs it up.

[micawber]

I think a key point with the Orlando property is that even if they paid a full price for it (or overpaid!), it still creates more value than letting land assets languish on the balance sheet and hoping the market will recognize it. If they keep selling land and legacy assets and rolling it over into full price warehouses - the stock will go up because market will be forced to value a simple collection of warehouse assets instead of the hidden assets currently.

[Gregmal]

I think a key point with the Orlando property is that even if they paid a full price for it (or overpaid!), it still creates more value than letting land assets languish on the balance sheet and hoping the market will recognize it. If they keep selling land and legacy assets and rolling it over into full price warehouses - the stock will go up because market will be forced to value a simple collection of warehouse assets instead of the hidden assets currently.

 

I dont necessarily think that is accurate. These things dont trade at discounts because people can't figure out a rough idea of what the aggregate pieces are worth; they trade at discounts because participants doubt that there is a way to unlock that value. The buck stops with management, for better or worse. Especially when you have this kind of ownership concentration.

 

To that effect, if you look at companies that have worked on such types of transformations, you'll see that often it takes a very long time for this to bleed through. And then still, when you look at the total return, and compare it against what a plain old index or even peer group did during that time, its arguable as to whether anything was actually unlocked vs simply just doing what everything else did. The only two things Ive seen disrupt big discounts are either corporate actions, or, management making a series of undeniably shareholder friendly capital allocation decisions.

 

Separately, I am curious as to why the have they Lexington Ave office? From the little Ive gandered, it doesn't appear to be a full floor, so its likely less than $100K a year vs $100K a month in expense, but they dont have any property in NYC or even close, so why is this necessary? Unless Im missing something.

[Deepdive]

I think a key point with the Orlando property is that even if they paid a full price for it (or overpaid!), it still creates more value than letting land assets languish on the balance sheet and hoping the market will recognize it. If they keep selling land and legacy assets and rolling it over into full price warehouses - the stock will go up because market will be forced to value a simple collection of warehouse assets instead of the hidden assets currently.

 

I agree with this assessment.  Look at this thread, people do not have a good idea of what the land parcels are worth.  If they take $60-80mm of land parcel and use it as equity to buy $120-$160mm of warehouses.  The market will be able to value it much easier. 

[Mephistopheles]

I asked about primers earlier, this is not it, but for those who don't know, JLL has some neat research tools to look up industry statistics. Below is the Q2 2019 industry report. It's a good source to gauge the supply/demand and pricing characteristics in various markets across the country.

 

https://www.us.jll.com/en/trends-and-insights/research/industrial-market-statistics-trends

[BG2008]

With the Q3 results, Prologis now trades at a 3.5% cap rate after giving full credit to their development NOI.  Griffin is a 10% cap if you make adjustments or at least a 8% cap rate if you assume no credit for the land value.  Maybe there is some value here?  Look at page 31 and 32

 

https://s22.q4cdn.com/908661330/files/doc_financials/2019/q3/Q3_2019_Supplemental_-FINAL.pdf

 

$2.587bn of NOI (including future develoment NOI)

Divided by EV of $72.7bn (MC of $59.1bn + Debt/Preferred of $13.6bn )

 

equals 3.56% cap rate

 

Oh, almost forgot.  Prologis is buying Liberty Property Trust for $12.6bn or roughly $112 a sqft. 

 

https://www.bizjournals.com/philadelphia/news/2019/10/27/liberty-property-trust-to-be-sold-in-12-6b-deal.html?ana=yahoo&yptr=yahoo

 

 

[BG2008]

$112/sqft will value the warehouse portfolio at $451mm add in $25mm for office and $60mm give or take for land parcel, and we will get a portfolio value of $536mm.  Less $130mm of net debt, NAV per share of $79.  Maybe take $10/share off and you get $69. 

[grym02]

What about SG&A? All of these NAV figures ignore the ongoing drag if they do not sell, and these costs impact actual returns for ongoing shareholders. i.e. P/FFO is much less attractive. 7.5m in G&A at 20x multiple = 150m = $30 a share. Still gives some upside vs. current prices, but almost all of it comes from the land parcels, which need to be adj for time value of money (at a decently high hurdle rate, given dev risk). Thoughts?

[BG2008]

What about SG&A? All of these NAV figures ignore the ongoing drag if they do not sell, and these costs impact actual returns for ongoing shareholders. i.e. P/FFO is much less attractive. 7.5m in G&A at 20x multiple = 150m = $30 a share. Still gives some upside vs. current prices, but almost all of it comes from the land parcels, which need to be adj for time value of money (at a decently high hurdle rate, given dev risk). Thoughts?

 

These NAV figures assumes an arms length transaction between willing buyers and sellers.  The buyers can put their own G&A on this asset.  Buyers can probably manage this portfolio with $1-2mm of G&A.  Griffin is being punished for being subscale.  But a warehouse is a warehouse.  There can be different owners.  A buyer with their existing G&A infrastructure and without public company cost can extract a lot more cashflow from this portfolio. 

[BG2008]

They just bought another land development site in Lehigh Valley using the 1031 proceeds.  They can build a 100,000 sqft warehouse on this. 

 

http://www.griffinindustrial.com/about/news-events/griffin-announces-closing-on-land-purchase-102819

[BG2008]

They just bought another land development site in Lehigh Valley using the 1031 proceeds.  They can build a 100,000 sqft warehouse on this. 

 

http://www.griffinindustrial.com/about/news-events/griffin-announces-closing-on-land-purchase-102819

 

This is a pretty good deal as warehouses in Lehigh are worth $140/sqft.  They are paying less than $20 for the land.  Let's say that construction cost is $60.  They can create this for $80-100/sqft and create $40-60/sqft of value for the warehouse. 

[glorysk87]

I've had my eye on this for a while now. Curious how you get confidence that they will sell? I've seen a lot of these 'undervalued real estate portfolio' theses, and they very rarely work out because management and/or the family are reluctant to sell. Has anyone actually spoken with management to gauge their willingness to monetize?

[writser]

What about SG&A? All of these NAV figures ignore the ongoing drag if they do not sell, and these costs impact actual returns for ongoing shareholders. i.e. P/FFO is much less attractive. 7.5m in G&A at 20x multiple = 150m = $30 a share. Still gives some upside vs. current prices, but almost all of it comes from the land parcels, which need to be adj for time value of money (at a decently high hurdle rate, given dev risk). Thoughts?

 

These NAV figures assumes an arms length transaction between willing buyers and sellers.  The buyers can put their own G&A on this asset.  Buyers can probably manage this portfolio with $1-2mm of G&A.  Griffin is being punished for being subscale.  But a warehouse is a warehouse.  There can be different owners.  A buyer with their existing G&A infrastructure and without public company cost can extract a lot more cashflow from this portfolio.

 

I'm interested to hear if you have a standalone valuation of GRIF, just in case no deal materializes. Or is your thesis: it will for sure be sold so I value it as-if and don't bother with the SG&A.

[Mephistopheles]

Blackstone’s Online-Shopping Play: Warehouses https://www.wsj.com/articles/blackstones-online-shopping-play-800-million-square-feet-of-warehouses-11572082201

 

Nice article in the WSJ this morning. Emphasizes one of the concerns I have (warranted or otherwise): The big trend in online shopping is same day delivery. Secondly, a majority of costs for online retailers is transportation, not rent. So even if the rent is quadruple right in big cities, it may be better to rent there vs several hours away. Now Prologis is building two story warehouses in big population centers due to land availability issues.

 

Of course not all shipping is same day and not all storage is for online retail but just something to think about.

[grym02]

What about SG&A? All of these NAV figures ignore the ongoing drag if they do not sell, and these costs impact actual returns for ongoing shareholders. i.e. P/FFO is much less attractive. 7.5m in G&A at 20x multiple = 150m = $30 a share. Still gives some upside vs. current prices, but almost all of it comes from the land parcels, which need to be adj for time value of money (at a decently high hurdle rate, given dev risk). Thoughts?

 

These NAV figures assumes an arms length transaction between willing buyers and sellers.  The buyers can put their own G&A on this asset.  Buyers can probably manage this portfolio with $1-2mm of G&A.  Griffin is being punished for being subscale.  But a warehouse is a warehouse.  There can be different owners.  A buyer with their existing G&A infrastructure and without public company cost can extract a lot more cashflow from this portfolio.

 

Understood. I get the economic rationale for the sale. But obviously a sale might not happen and absent a sale, the value of the company to a continuing outside shareholder is substantially less than the NAV number getting thrown around. That SG&A is a drag on returns and it isn't exactly screaming cheap on an absolute basis (look at P/FFO). A sale makes sense and the NAV is higher, but the more important question to me is what do the financials look like in 3-5 years without a sale?

[BG2008]

What about SG&A? All of these NAV figures ignore the ongoing drag if they do not sell, and these costs impact actual returns for ongoing shareholders. i.e. P/FFO is much less attractive. 7.5m in G&A at 20x multiple = 150m = $30 a share. Still gives some upside vs. current prices, but almost all of it comes from the land parcels, which need to be adj for time value of money (at a decently high hurdle rate, given dev risk). Thoughts?

 

These NAV figures assumes an arms length transaction between willing buyers and sellers.  The buyers can put their own G&A on this asset.  Buyers can probably manage this portfolio with $1-2mm of G&A.  Griffin is being punished for being subscale.  But a warehouse is a warehouse.  There can be different owners.  A buyer with their existing G&A infrastructure and without public company cost can extract a lot more cashflow from this portfolio.

 

I'm interested to hear if you have a standalone valuation of GRIF, just in case no deal materializes. Or is your thesis: it will for sure be sold so I value it as-if and don't bother with the SG&A.

 

My view is that every year that goes by, GRIF becomes more of a warehouse company and less of a warehouse company with excess land.  At a certain point, it becomes a no brainer for a public REIT or a PE fund to buy GRIF.  Or the market starts agreeing with me and starts to value it at 80-90% of NAV instead of 55% of NAV at this moment.  NAV is not static and grows over time.  I am about 85% sure that GRIF will be bought out if it continues to trade at these prices in 1-2 years.  If it doesn't get bought out, it is likely because the price has risen to close the gap to NAV.  Investing is probabilistic.  I just have a different conviction rate of the probability of a take out at these prices.     

 

Why would they sell?  Culbro, the parent company from 20 years ago, has a history of selling assets when they can't grow it themselves.  They even sold their core cigar business to Swedish Match.  Most of the family members are private equity guys who understands that if you get an offer for $65-70, it may take them 2-4 years and execution risk to get there on their own.  I think they are rational.  But that's just my opinion.  But I am putting my money behind my opinion.   

 

 

[BG2008]

Blackstone’s Online-Shopping Play: Warehouses https://www.wsj.com/articles/blackstones-online-shopping-play-800-million-square-feet-of-warehouses-11572082201

 

Nice article in the WSJ this morning. Emphasizes one of the concerns I have (warranted or otherwise): The big trend in online shopping is same day delivery. Secondly, a majority of costs for online retailers is transportation, not rent. So even if the rent is quadruple right in big cities, it may be better to rent there vs several hours away. Now Prologis is building two story warehouses in big population centers due to land availability issues.

 

Of course not all shipping is same day and not all storage is for online retail but just something to think about.

 

Different cap rates for last mile versus the stuff that Griffin owns.  If I pay the same cap rate, what would I want to own.  Of course, I would want to own the warehouse sitting in the Bronx or Queens.  The rush to re-construct warehouses means that everyone benefits.  There is a lot of NIMBYism at work in the LeHigh Valley as the residents don't want a ton of truck traffic driving down their 2 lane farming community roads.  There are a lot of products that can be delivered in 1 days with a 2 hour distance outside of NYC.  Griffin tends to own regional distribution assets.  The LA/SF/NYC assets are 3% cap rate.  The Charlotte are 5.5%, LeHigh is low 4%.  Every transaction that Blackstone and Prologis makes, they highlight Southern Cali or Northern NJ.  But if you look very carefully, they actually buy a lot of assets similar to Griffin's portfolio. 

 

 

[BG2008]

Blackstone’s Online-Shopping Play: Warehouses https://www.wsj.com/articles/blackstones-online-shopping-play-800-million-square-feet-of-warehouses-11572082201

 

Nice article in the WSJ this morning. Emphasizes one of the concerns I have (warranted or otherwise): The big trend in online shopping is same day delivery. Secondly, a majority of costs for online retailers is transportation, not rent. So even if the rent is quadruple right in big cities, it may be better to rent there vs several hours away. Now Prologis is building two story warehouses in big population centers due to land availability issues.

 

Of course not all shipping is same day and not all storage is for online retail but just something to think about.

 

Different cap rates for last mile versus the stuff that Griffin owns.  If I pay the same cap rate, what would I want to own.  Of course, I would want to own the warehouse sitting in the Bronx or Queens.  The rush to re-construct warehouses means that everyone benefits.  There is a lot of NIMBYism at work in the LeHigh Valley as the residents don't want a ton of truck traffic driving down their 2 lane farming community roads.  There are a lot of products that can be delivered in 1 days with a 2 hour distance outside of NYC.  Griffin tends to own regional distribution assets.  The LA/SF/NYC assets are 3% cap rate.  The Charlotte are 5.5%, LeHigh is low 4%.  Every transaction that Blackstone and Prologis makes, they highlight Southern Cali or Northern NJ.  But if you look very carefully, they actually buy a lot of assets similar to Griffin's portfolio.

 

Look at page 13 of the supplemental

 

https://d1io3yog0oux5.cloudfront.net/_8575bdd6a0ee66e50a0047003731c9bd/libertyproperty/db/367/19725/supplemental_information/Supplemental+for+Quarter+Ended+September+30%2C+2019.pdf

 

26% of Liberty Property Trust's warehouses are located in the LeHigh Valley.  But the headlines says Southern California. 

 

From a news article

 

"Prologis aims to use the acquisition to bolster its presence in the United States amid a boom in e-commerce, according to Reuters. The company cited markets including New Jersey, Southern California and Chicago as places where the Liberty acquisition would help it establish a stronger foothold."