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Was Rhizome Partners Right About Griffin Industrial Realty, Inc. (GRIF)?

Reymerlyn Martin

Insider Monkey has published a copy of Rhizome Partners' 2019 Q2 investor letter. One of the stocks in the letter Rhizome talked about was Griffin Industrial Realty. It will be recalled that Rhizome Partners first talked about Griffin Industrial Realty, Inc. (GRIF) in their original thesis that was published in their Q3 2017 letter. The fund has been invested in this stock for about 2 years. Rhizome believes that GRIF, which invests in warehouses and lands that are being sold in order to produce income-producing assets, will gradually transition into a dividend-paying REIT.

In its Q2 2019 commentary, Rhizome Partners talked about GRIF again and provided an update.

"Q2 2019 Updates – We attended the shareholder meeting in May and chatted briefly with the management team.  This year’s session consisted of the same inquiries from shareholders regarding share buybacks, general and administrative costs, and updates on developments and leasing.  It is very clear to us that Griffin’s management team is frustrated with the large persistent gap between the stock and the intrinsic value.  We consider this dynamic to be a net positive.  Sometimes we find ourselves invested in family controlled companies and the insiders have a "the stock will do what it will do" outlook.  We believe that overly focusing on short‐term stock price movement is a waste of effort and attention.   It is important for companies to allocate resources toward building the right shareholder base and correctly communicating the long‐term objective of a company.  Through conversation and analyzing body language, we believe that Griffin’s management team does intend to narrow the wide price‐to‐value gap over time."

In its 2017 annual report released on April 5, 2018, Griffin reported significant growth in its industrial/warehouse business and entry into a new geographic market. The said growth was due to the acquisition of an industrial/warehouse building in Charlotte, North Carolina as well as the development of its industrial/warehouse building in Connecticut. In addition, Griffin’s property portfolio increased by 12.5% and its profit from leasing activities increased by 15.6%. This growth was caused by the lease-up of all of its industrial/warehouse space and gains from its industrial/warehouse portfolio.

In its 2018 annual report released on April 5, 2019, Griffin announced the continued significant growth of its property portfolio and net operating income from leasing. Both gained 10% in the past year. The company developed industrial/warehouse buildings in its current geographic markets: (1) Charlotte, North Carolina, (2) Hartford, Connecticut, and (3) the Lehigh Valley of Pennsylvania. Griffin now owns a total of 4,078,000 square feet of industrial/warehouse properties which comprise 89% of its portfolio.

Two years ago GRIF shares were changing hands for around $36. The stock is currently sitting at $37. S&P 500 ETF (SPY) returned about 16% over the last 2 years. This means Rhizome investors would have been better off by simply investing in an index fund rather than this stock. Rhizome was wrong about GRIF for the last two years. Does this mean that the stock isn't a good investment going forward? Please leave your comments below.

Insider Monkey’s mission is to identify promising (and also terrible) hedge fund stock pitches and share them with our subscribers. Our long strategy is based on the consensus picks of the 100 best performing hedge funds. This strategy was launched 5 years ago and generated a cumulative return of 115%. You can think of it as a mutual fund that returned 16.2% annually over the last 5 years, vs. 11.1% annual gain for the S&P 500 ETF (SPY). Basically we outperformed the S&P 500 Index by 5 percentage points annually by identifying the top stock picks of the best hedge fund managers (see the details here). We don't know whether GRIF is going to be a winner but we just identified a well established growth stock that is trading at only 3 times its core earnings. We believe this stock can easily double in the next few years. We can't say the same thing about GRIF.

Disclosure: None. This article was originally published at Insider Monkey.