GRIF - Griffin Industrial Realty

[Gregmal]

Granted, some of this may be due to the illiquidity, but isn't it funny how little you need to go right in order to make money when buying at such a substantial discount to FV?

[BG2008]

Granted, some of this may be due to the illiquidity, but isn't it funny how little you need to go right in order to make money when buying at such a substantial discount to FV?

 

Gregmal,

 

I disagree with you a bit given that I have held this, patiently, for over 2 years and have just recently started showing some profit for it.  You are much better at picking your entry points.  You successfully called that $35 and the $36 were the new bottom. 

 

From the Prologis/Liberty Property Call, someone asked "what's so exciting about LeHigh Valley" at 25:00 of the call.  They distinguish between central PA and LeHigh Valley.  Central PA is one hour west of LeHigh Valley and Prologis will try to sell 3mm sqft in Central PA.  But they want to hold onto all of the newly acquired LeHigh Valley assets.  They have been trying to buy in LeHigh Valley "forever".  LeHigh is not as high rent growth as coastal cities, but they explained that construction cost keeps going up and entitlement keep getting harder.  Some are some short term supply issue in LeHigh Valley.  I think they said like 3.8% vacancy.  I wish all the real estate that I own have that type of vacancy.  They call it "irreplaceable products" and "not going to build more".  People will have to go west.  These descriptions are literally from the largest player in the space.   

 

https://event.on24.com/eventRegistration/console/EventConsoleApollo.jsp?&eventid=2126318&sessionid=1&username=&partnerref=&format=fhaudio&mobile=&flashsupportedmobiledevice=&helpcenter=&key=447C2CD9B756B39CE8080D61F8512973&newConsole=false&text_language_id=en&playerwidth=748&playerheight=526&eventuserid=258908914&contenttype=A&mediametricsessionid=215527773&mediametricid=2996797&usercd=258908914&mode=launch

[Gregmal]

Haha Im sure I could give you a run for your money in terms of exhibits of patience and stocks Ive been sitting on quite awhile, but that's not a competition I think either of us want to win. One of which has earnings tomorrow which may be the end of my investment if Mrs. Barra does not start inspiring.

 

But what you discuss in the second half of your post is a unique market characteristic that Ive noticed shares similarities with another company I have owned(and yes sat on, and waited patiently with for quite a while) Global Self Storage. Ive had discussions with Mark and Tom about this exact dynamic that happens to be occurring in Lehigh Valley. The areas we all know all love, high density, urban, etc, theres no supply and nowhere to buildout. Tertiary or key secondary markets are tricky, but if you find there right ones, you're golden. The ones where permitting and entitlements take forever(your moat), supply is thus limited and if you own there already, you get to raise prices way faster than normal while building out existing facilities...as your competitors are faced with the reality of having to either move out further into unfavorable and more rural markets, wait an eternity to get the green light from foot dragging bureaucrats, or make you an offer you cant refuse. I'd definitely say this is one of the areas I am excited about with Griffin. Core market expertise is crucial for companies like this.

[BG2008]

Haha Im sure I could give you a run for your money in terms of exhibits of patience and stocks Ive been sitting on quite awhile, but that's not a competition I think either of us want to win. One of which has earnings tomorrow which may be the end of my investment if Mrs. Barra does not start inspiring.

 

But what you discuss in the second half of your post is a unique market characteristic that Ive noticed shares similarities with another company I have owned(and yes sat on, and waited patiently with for quite a while) Global Self Storage. Ive had discussions with Mark and Tom about this exact dynamic that happens to be occurring in Lehigh Valley. The areas we all know all love, high density, urban, etc, theres no supply and nowhere to buildout. Tertiary or key secondary markets are tricky, but if you find there right ones, you're golden. The ones where permitting and entitlements take forever(your moat), supply is thus limited and if you own there already, you get to raise prices way faster than normal while building out existing facilities...as your competitors are faced with the reality of having to either move out further into unfavorable and more rural markets, wait an eternity to get the green light from foot dragging bureaucrats, or make you an offer you cant refuse. I'd definitely say this is one of the areas I am excited about with Griffin. Core market expertise is crucial for companies like this.

 

Global Self Storage - Talk about a subscale company!

[oscarazocar]

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.

 

How do you reconcile Lehigh Valley being a land-constrained, tough-to-build market with GRIF buying land for $20/sqft in a clean sale, being able to build for $60-80/sqft, and having that be worth $140/sqft?

[Gregmal]

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.

 

How do you reconcile Lehigh Valley being a land-constrained, tough-to-build market with GRIF buying land for $20/sqft in a clean sale, being able to build for $60-80/sqft, and having that be worth $140/sqft?

 

In many markets, which I assume is the case here, you have to factor in a risk premium to the developer. IE, its not as simple as it is on paper. Even with entitlements and whatnot, you dont just buy it, snap your fingers, and have a facility built. If you buy the land, and successfully develop it, more often than not it is not unreasonable to have a 30%+ premium now added.

[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.

 

How do you reconcile Lehigh Valley being a land-constrained, tough-to-build market with GRIF buying land for $20/sqft in a clean sale, being able to build for $60-80/sqft, and having that be worth $140/sqft?

 

In many markets, which I assume is the case here, you have to factor in a risk premium to the developer. IE, its not as simple as it is on paper. Even with entitlements and whatnot, you dont just buy it, snap your fingers, and have a facility built. If you buy the land, and successfully develop it, more often than not it is not unreasonable to have a 30%+ premium now added.

 

Well said

[BG2008]

Unless I am crazy, Yahoo finance says that 1.46mm shares of Griffin Industrial traded yesterday, October 31st, 2019.  That's actually 29% of all the shares outstanding.  Is there a bid coming for Griffin?  You can't look at the public trading volume and not wonder what the heck is going on.  The shares traded are literally more than all the float of the company as of the April 9th 2019 proxy.  Am I crazy or is there something to this "tea leave"?  In the last 3 weeks, 35% of all shares outstanding have traded.  Anyone else has any thoughts?  This weird trading volume and the background of all the warehouse deals happening every few weeks. 

[thepupil]

Unless I am crazy, Yahoo finance says that 1.46mm shares of Griffin Industrial traded yesterday, October 31st, 2019.  That's actually 29% of all the shares outstanding.  Is there a bid coming for Griffin?  You can't look at the public trading volume and not wonder what the heck is going on.  The shares traded are literally more than all the float of the company as of the April 9th 2019 proxy.  Am I crazy or is there something to this "tea leave"?  In the last 3 weeks, 35% of all shares outstanding have traded.  Anyone else has any thoughts?  This weird trading volume and the background of all the warehouse deals happening every few weeks.

 

bloomberg does not show that large trade, only 14,000 or so shares traded yesterday.

[BG2008]

Yahoo finance GRIF Trading volume attached, got me excited for a second

 

Thanks for clearing this up, Thepupil

[BG2008]

Yeah, Nasdaq.com shows 14,616 shares traded yesterday.  Bummer. 

[Gregmal]

Either way, I think the situation has gotten interesting.

 

First my speculation and subjective 2c.

 

Stocks trade in ranges, until something material happens. They're also obviously influenced by macro/broader movement in asset price direction. So GRIF has basically done the mid 30's to high 30's thing now for a while. The range has narrowed, higher lows to me seem evident. 35 as a bottom turns to 36, and the upper end adjusts as well. Whereas, lets say HHC announcing a strategic review catapults the stock into a new trading range, GRIF hasn't really had any material events. On the other end, the consistent evidence of undervaluation to me is not immaterial either. I would think the upper end of this range should probably hold for now, and shares are just waiting for a more definitive push to launch higher. I'd certainly be a short term, speculative buyer again around $37-$38 in light of the recent news, otherwise am cool holding the modest amount Ive got.

 

The other thing I'd focus on is exposure. Dillard's isn't a slam dunk trade at $55 on its own. Neither is the short interest by itself. But in the 50's, during a period of favorable buyback activity, it's more appealing. Once you start seeing talk about Dillard's, and short squeezes, and the shares start getting a little zippy, you've got the receipt for a great trade. In its own little way, you can see GRIF becoming it's own little cocktail of successful ingredients. The exposure is definitively happening, albeit slowly and in ways you only see with thinly traded micro caps. But the tell tale signs are there. Eyeballs are on this more now than probably anytime prior.

 

Otherwise, Gabelli has been a seller, but still owns a ton. The family supposedly has a few eager sellers. Either they're idiots, or they keep an eye on their investments, and in which case, probably cant help but notice what the underlying assets are currently going for. I wouldn't be in this exclusively for a sale, but again, the ingredients for a home run cocktail are all there...

[Deepdive]

Either way, I think the situation has gotten interesting.

 

First my speculation and subjective 2c.

 

Stocks trade in ranges, until something material happens. They're also obviously influenced by macro/broader movement in asset price direction. So GRIF has basically done the mid 30's to high 30's thing now for a while. The range has narrowed, higher lows to me seem evident. 35 as a bottom turns to 36, and the upper end adjusts as well. Whereas, lets say HHC announcing a strategic review catapults the stock into a new trading range, GRIF hasn't really had any material events. On the other end, the consistent evidence of undervaluation to me is not immaterial either. I would think the upper end of this range should probably hold for now, and shares are just waiting for a more definitive push to launch higher. I'd certainly be a short term, speculative buyer again around $37-$38 in light of the recent news, otherwise am cool holding the modest amount Ive got.

 

The other thing I'd focus on is exposure. Dillard's isn't a slam dunk trade at $55 on its own. Neither is the short interest by itself. But in the 50's, during a period of favorable buyback activity, it's more appealing. Once you start seeing talk about Dillard's, and short squeezes, and the shares start getting a little zippy, you've got the receipt for a great trade. In its own little way, you can see GRIF becoming it's own little cocktail of successful ingredients. The exposure is definitively happening, albeit slowly and in ways you only see with thinly traded micro caps. But the tell tale signs are there. Eyeballs are on this more now than probably anytime prior.

 

Otherwise, Gabelli has been a seller, but still owns a ton. The family supposedly has a few eager sellers. Either they're idiots, or they keep an eye on their investments, and in which case, probably cant help but notice what the underlying assets are currently going for. I wouldn't be in this exclusively for a sale, but again, the ingredients for a home run cocktail are all there...

 

I think this is a great summary of the situation.  I spoke with someone recently and mentioned the 7.1% that traded in October.  His response is "holy cow", 7.1% in 2 days for a 22% float company is a major event.  This forum is starting to have a conversation about GRIF.  It took some time to convince people.  There are still some skeptics who are overly focused on the "no sale" scenario.  Yet you have guys like ThePupil and Gregmal buying shares.  These two have expertise in real estate investing and tend to get in at decent prices.  Gregmal has the 6th sense for good entry points.  It seems like the downside is only $2-4 if it trades back down to $36 because Gregmal and ThePupil will be buying it along with others.  Perhaps you don't get the full $72 without a sale, but even at 75-80% of NAV, it trades at $54-58 which is a good 35-45% higher than the current price.  You also have the free optionality that it gets bought out at $72.  It isn't like there are 5 articles on Seeking Alpha touting Ricks' Cabaret.  The articles of Griffin on SA are a few years old and a lot has happened since then.     

[BG2008]

Just a reminder to people that Griffin pays their dividend on an annual basis.  Last year, it was $0.45 and this year, it could be $0.50.  The ex-date last year was November 30th and the pay date was December 7th.  So whatever that you wind up paying for the shares, you should probably adjust it by 45-50 cents per share which you should get back in less than a month.  Not a game changer, but it's something to consider.  This is approximately 1.3% yield. Most of the industrial REITs have 2.5% yield.  Thus, this is almost a half a year of a peer's dividend yield. 

[BG2008]

NEW YORK, NEW YORK (November 21, 2019) Griffin Industrial Realty, Inc. (NASDAQ: GRIF) (“Griffin”) announced today that its Board of Directors has declared an annual cash dividend of $0.50 per share on Griffin’s common stock, representing an increase of $0.05 per share from the annual cash dividend paid in December 2018. The dividend is payable on December 16, 2019 to stockholders of record at the close of business on December 6, 2019. The Board’s decision to declare an annual dividend this fiscal year was based on Griffin’s expected operating results for the fiscal year ending November 30, 2019. Prospectively, Griffin expects to continue to consider the payment of an annual dividend late in the fiscal year based on that fiscal year’s results and cash flows and Griffin’s estimated future cash requirements.

[AJB96]

Well done article posted on Seeking Alpha yesterday.

 

Griffin Industrial Realty: Space Race Will Likely Lead To A Buy-Out: https://seekingalpha.com/article/4308249-griffin-industrial-realty-space-race-will-likely-lead-buy

[BG2008]

Well done article posted on Seeking Alpha yesterday.

 

Griffin Industrial Realty: Space Race Will Likely Lead To A Buy-Out: https://seekingalpha.com/article/4308249-griffin-industrial-realty-space-race-will-likely-lead-buy

 

This article was behind a paywall and seems to be available for all as of today.  I agree that this is a well done article that look at multiple methods of valuing the warehouse portfolio

[BG2008]

NEW YORK, Dec. 09, 2019 (GLOBE NEWSWIRE) -- Griffin Industrial Realty, Inc. (GRIF) (“Griffin”) announced that in the three months ended November 30, 2019 (the “2019 fourth quarter”) it executed two new leases totaling approximately 105,000 square feet of industrial/warehouse space (including the previously disclosed approximately 74,000 square foot lease) and extended a lease for approximately 15,000 square feet of office/flex space. The new leases both were for space in 160 International Drive which, along with 180 International Drive, are located in Concord, North Carolina, in the greater Charlotte area, and were completed and placed in service in the 2019 fourth quarter. These two new industrial/warehouse buildings total approximately 283,000 square feet, increasing Griffin’s portfolio in the Charlotte market to three industrial/warehouse buildings aggregating approximately 560,000 square feet. In the 2019 fourth quarter, Griffin also acquired a fully leased approximately 100,000 square foot industrial/warehouse building in Orlando, Florida, Griffin’s first property in that market.

 

As of November 30, 2019, Griffin’s twenty-eight industrial/warehouse buildings aggregating approximately 4,029,000 square feet (90% of Griffin’s total real estate portfolio) were 93% leased (97% excluding 160 and 180 International Drive). Griffin’s twelve office/flex buildings aggregating approximately 433,000 square feet were 70% leased as of November 30, 2019. Griffin’s total real estate portfolio of approximately 4,462,000 square feet was 90% leased as of November 30, 2019 (94% excluding 160 and 180 International Drive).

[Gregmal]

Stealthily this has basically traded to the 52 week high(incorporating the 50c dividend). There's no shares to be had under $40...Ive been fucking around with bids and outside of a few tiny odd lot fills there is just nothing to be had. One tiny little spark should get this into a new and higher trading range. As far as investments go, this is one of maybe 3-4 things still unequivocally attractive right now IMO.

[BG2008]

NEW YORK, Dec. 09, 2019 (GLOBE NEWSWIRE) -- Griffin Industrial Realty, Inc. (GRIF) (“Griffin”) announced that in the three months ended November 30, 2019 (the “2019 fourth quarter”) it executed two new leases totaling approximately 105,000 square feet of industrial/warehouse space (including the previously disclosed approximately 74,000 square foot lease) and extended a lease for approximately 15,000 square feet of office/flex space. The new leases both were for space in 160 International Drive which, along with 180 International Drive, are located in Concord, North Carolina, in the greater Charlotte area, and were completed and placed in service in the 2019 fourth quarter. These two new industrial/warehouse buildings total approximately 283,000 square feet, increasing Griffin’s portfolio in the Charlotte market to three industrial/warehouse buildings aggregating approximately 560,000 square feet. In the 2019 fourth quarter, Griffin also acquired a fully leased approximately 100,000 square foot industrial/warehouse building in Orlando, Florida, Griffin’s first property in that market.

 

As of November 30, 2019, Griffin’s twenty-eight industrial/warehouse buildings aggregating approximately 4,029,000 square feet (90% of Griffin’s total real estate portfolio) were 93% leased (97% excluding 160 and 180 International Drive). Griffin’s twelve office/flex buildings aggregating approximately 433,000 square feet were 70% leased as of November 30, 2019. Griffin’s total real estate portfolio of approximately 4,462,000 square feet was 90% leased as of November 30, 2019 (94% excluding 160 and 180 International Drive).

 

I posted the new leasing news fairly quickly and did not took time to read it properly.  I just realized that they leased 105K of the potential 283k sqft in the Charlotte, NC market for roughly 37% of the space.  From my conversation with a local broker, Charlotte is a "build it then lease it town."  People simply won't lease unless you already have the product.  Seems like it is moving along. 

 

Regarding the trading stats/patterns.  Greg tends to be much better at it than the rest of us.  Volume is thin around $40.  I guess that means firework if we get some more interest in it.  We will see. 

[BG2008]

New $6.5mm non-recourse loan on the new $10mm Orlando acquisition.  65% LTV @ 3.6% interest rate for 10 years.  Griffin consist of lots of ring-fenced non-recourse mortgages.  Even if they bought the property at a 5% cap rate, the 3.6% interest rate would yield excess cashflow.  I suspect they did the deal because they needed to put 1031 capital to work.

http://www.griffinindustrial.com/about/news-events/griffin-announces-closing-on-65-million-mortgage-loan

[Gregmal]

https://moiglobal.com/bill-chen-202001/

 

Well done.

 

 

[Gregmal]

Two more buildings purchased in Orlando.

 

While I still totally dig this as a great place to park some cash, the more we see acquisitions, especially ones like this, the less likely we are to see any sort of game breaking event like a sale of the company or a meaningful buyback. So thats not to say, be bearish on Griffin, but if one had the odds of them selling the company or repurchasing stock(or any other narrative busting/valuation improving event) at say 35%, I'd say events like this knock a few more percentage points off that number.

[villainx]

Two more buildings purchased in Orlando.

 

While I still totally dig this as a great place to park some cash, the more we see acquisitions, especially ones like this, the less likely we are to see any sort of game breaking event like a sale of the company or a meaningful buyback. So thats not to say, be bearish on Griffin, but if one had the odds of them selling the company or repurchasing stock(or any other narrative busting/valuation improving event) at say 35%, I'd say events like this knock a few more percentage points off that number.

 

 

BG2008 mentioned 1031 motivation. 

[BG2008]

Two more buildings purchased in Orlando.

 

While I still totally dig this as a great place to park some cash, the more we see acquisitions, especially ones like this, the less likely we are to see any sort of game breaking event like a sale of the company or a meaningful buyback. So thats not to say, be bearish on Griffin, but if one had the odds of them selling the company or repurchasing stock(or any other narrative busting/valuation improving event) at say 35%, I'd say events like this knock a few more percentage points off that number.

 

 

BG2008 mentioned 1031 motivation.

 

No insights on these 2 deals.  One is 100% vacant, maybe they saw some opportunity to lease up and provide value add.  There has not been anything significant sold lately.  Totally speculating here.  1031 deals can be done in reverse. So if they are nearing a deal to sell something and feel confident they can close soon, they can buy something first and reverse 1031 it.  Maybe, there is a big $10mm land deal on the way.  Again, totally speculating.  Don't read too much into it.