Summary
- Griffin Industrial Realty is worth about double its current price.
- Blackstone and Prologis have spent billions buying warehouses in the past few years.
- Griffin has been able to grow their NOI and FFO rapidly in recent years.
- Griffin trades at deep discounts based on cap rates relative to warehouse REITs.
- Griffin owns over 2,000 acres of land parcels.
Overview
Griffin Industrial Realty (NASDAQ:GRIF) owns over 4 mm sqft of warehouses in Hartford, CT; LeHigh Valley, PA; Charlotte, NC; and Orlando, FL. The warehouse portfolio represents about 80% of the Griffin's value and it continues to grow over time. They also own a 433k sqft office portfolio and a little over 2,000 acres of land in Hartford, CT (after 2019 land sales). The excess land holding comes from being a subsidiary of another public company that used to grow tobacco in the area north of Hartford, CT. In recent years, e-commerce have taken share away from brick and mortar retail. This results in a growing need for warehouses to deliver goods to consumer. This trend should continue for foreseeable future. Griffin has benefited from this recent trend as businesses continue to improve delivery time.
Valuation
Comparable public companies such as Prologis, EastGroup, First Industrial, and Duke Realty, Monmouth Real Estate, and Stag Industrials trade at a much lower cap rates and higher $/sqft valuations relative to GRIF. Liberty Property Trust was recently bought out by Prologis for $12.6bn. As a group, these warehouse REITs trade at about 4.5% cap rate. Griffin trades at 7.5% cap rate based on an annualized NOI figure of $24.6mm (using Q3 2019 results). In addition, Griffin owns over 2,000 acres of land. If we apply a $20-30k per acre valuation, the land is worth $40-60mm total. This is free upside that most of the comparable REITs do not have and is worth $8-12 per share on a $39 stock.
| Ticker | Public Industrial REITS | Net Debt and Preferred ($mm) | Share Price | Market Cap ($mm) | EV ($mm) | NOI ($mm) | Cap Rate |
| PLD | Prologis | $13,681 | $87.00 | $56,524 | $70,205 | $2,588 | 3.69% |
| EGP | EastGroup | $1,112 | 130.92 | $5,027 | $6,139 | $242 | 3.94% |
| FR | First Industrial | $1,628 | 41.42 | $5,343 | $6,971 | $319 | 4.58% |
| LPT | Liberty Property Trust | $3,581 | 58.7 | $9,451 | $13,032 | $535 | 4.11% |
| DRE | Duke Realty | $3,253 | 34.84 | $12,933 | $16,186 | $675 | 4.17% |
| MNR | Monmouth Real Estate | $1,159 | 14.78 | $1,407 | $2,566 | $131 | 5.10% |
| STAG | STAG Industrial | $1,551 | 30.63 | $4,196 | $5,747 | $337 | 5.86% |
| Average | 4.49% | ||||||
| GRIF | Griffin | $130 | $38.90 | $197 | $327 | $24.60 | 7.52% |
| Implied EV($mm) | Implied Share Price | Potential Upside | |||||
| High Cap Rate (5.86%) | $419.54 | $57.09 | 47% | ||||
| Low Cap Rate (3.69%) | $667.33 | $105.96 | 172% | ||||
| Average Cap Rate (4.49%) | $547.82 | $82.39 | 112% |
Source: Public SEC filings and REIT supplemental reports
If we assume that Griffin deserves to trade at a 100bps of cap rate higher than the average of the public comps, then GRIF's $24.6mm of run rate NOI divided by 5.5% cap rate implies a value of $443mm. Add in roughly $60mm estimate for 2,000 acres of land that GRIF still owns, we have a $503mm valuation. If we net out $130mm of net debt, we have a fair value of $373mm. Divided by 5.07mm shares, we have an implied share price of $73.57 or 89% upside.
