MNR - Monmouth REIT

[thepupil]

Disclaimer: I had never heard of this stock until a few hours ago, I'm early in my research and do not have a position.

 

EDIT:I decided it wasn't cheap enough to warrant the headache. Industrial is hot and all but I'm not going to get here on this. I almost want to short it because I think the fake merger will bust, but all it takes is one overeager PE buyer to want this and you'll lose money shorting it. there's a subset of this portfolio that's probably worth tighter than the implied 4.5 cap, but I don't think it's all of the portfolio

 

Since I was typing it out, I am going through with the post in case anyone is interested. Someone overpaying for this is probably not out of the question...

 

Monmouth REIT owns 120 triple net lease industrial buildings across the US comprising 24.5 million square feet. It has huge concentration to Fedex (58%) and to a lesser extent Amazon (6%).

 

In December, a Blackwells Capital LLC, put out an $18 bid for the company. This is one of these fake REIT bids that I hate. Blackwells LLC is a hedge fund (more accurately a family office from what i can gather), and it's not at all clear that they have a $1.7B equity check or co-investors to go through with this deal.

 

On January 14th, Monmouth announced its seeking strategic alternatives and that they hired JP Morgan and CS. So the stock is trading just below the sketch hedge fund bid, but the company is at the very least playing lip service to wanting to see if there's a better bid.

 

Capital Structure

$800mm of mortgages on about 1/2 of their buildings, 11 yr avg maturity

$100mm other liabilities

$507mm of preferred stock

$1.7B common

$3.0 Billion EV

$140mm of industrial NOI (4.6%) cap rate.

 

For perspective, they've spent about $2.0 billion purchasing this portfolio, relatively recently.

 

Gross Real Estate on Balance Sheet

2010: $450mm

2015: $941mm (bought about $100mm/year)

2020: $2.0B    (bought about $200mm/year)

they have a pending $350mm purchase

 

they also own  a portfolio of crappy REITs. At 9/30 cost was $235mm and value was $109mm (wowza!). they had big positions in stuff like CBL and PEI pre BK, and some retail exposure. The damage is mostly done and since 9/30 this portfolio up about 20% or so just eyeballing it.

 

the company has 14 employees and $9mm of G&A/year. the Chairman (Eugene Landy) and his son (CEO) are a fair bit of that.

 

It is not wildly undervalued, and the governance/management appears to be poor. That said the stock has returned 12.3% since 1988, 13.8% over the past 20 yrs, 13.4% over the past 10, 16% over the past 5 years, so it's not like they've completely stolen all the value; they've been buying industrial for many years so credit where its due on that. 

 

 

 

 

[matts]

The Landy's also run UMH Properties, Inc. (UMH) a trailer park owner. UMH also holds a significant investment portfolio of REITS,  including a big chunk of MNR, (as well as the names inside the MNR portfolio).

 

Similar story, governance at UMH isn't great and the family is leeching a bit, but just like with MNR, the asset class is hot.

 

[thepupil]

Litt rattling his sabre.

 

there's also an article behind a paywall called "Monmouth Draws Attention of Private Equity Suitors" (I'm not able to read it)

https://crenews.com/2021/01/26/monmouth-draws-attention-of-private-equity-suitors/

 

Activist Litt Calls for Better Oversight of Monmouth’s Review

Land & Buildings calling for truly independent committee

Monmouth rejected offer this month from Blackwells CapitalBy Scott Deveau

(Bloomberg) -- Activist investor Jonathan Litt said he is concerned about the legitimacy of the strategic review being run by Monmouth Real Estate Investment Corp., which he argues is being handled by “a clubby, underperforming board.”

Litt’s Land & Buildings Investment Management is calling on Monmouth’s board to strike a truly independent committee -- which would include his four nominees for the board -- to oversee the process to ensure a successful outcome for the industrial real estate company’s shareholders.

“Such a process would be unencumbered by either the personal and professional conflicts of interest that exist on the incumbent board or the taint of a competing desire to take the company private,” Litt said in a letter to shareholders Tuesday, a copy of which was obtained by Bloomberg. “Now more than ever shareholders need an objective board to determine which course of action will maximize value.”

A representative for Monmouth wasn’t immediately available for comment.

Monmouth has come under pressure after Blackwells Capital made an unsolicited proposal in December to acquire the company in an all-cash deal valued at about $3.8 billion. Monmouth rejected the $18-a-share proposal earlier this month, saying it wasn’t in the best interest of shareholders. It said its board had also unanimously decided to proceed with a strategic review, including exploring a sale or merger.

Blackwells has also submitted a slate four directors. While the firm welcomed the strategic review, it has also called on the company to forge an independent committee to oversee it.

Litt said his concerns about the current board includes the fact the chairman, president and chief executive officer roles are occupied by members of the founding Landy family. In addition to the close ties of the directors, he notedthe average director tenure of 17 years far exceeds that of best corporate practices.

“Monmouth shareholders deserve better -- a credible process lead by a special committee of truly independent directors including our nominees squarely focused on reaching a value-maximizing outcome for all shareholders,” he said.

Land & Buildings’s nominees include Litt, Gregory Hughes, Mark Filler, and Michelle Applebaum.