market folly

We're posting up notes from the Sohn London conference 2017.  Next up is Stephen Loukas of FrontFour Capital who pitched a long of Granite REIT (TSE:GRT).


Stephan Loukas's Sohn London Presentation

Long: Granite REIT (TSE:GRT)

Granite REIT is a Canadian listed owner-manager of industrial property. Its portfolio is comprised of 92 properties with 98% occupancy. It’s listed on TSX and NYSE.

Greenlight Capital have launched an activist campaign there.

Automotive supplier, Magna International, is its primary tenant representing 70% of its revenue.

Exposure: 27% Austria; 30% US; 27% Canada; 16% rest of Europe.

Dividend yield 5.2%. Pay-out ratio 76%. Leverage ratio 24%. Credit rating: investment grade.

There has been a significant change in the composition of the board – 5 new directors have been elected. FrontFour was a catalyst and were successful in having 3 of their directors elected. The CEO will depart early 2018. Expect there to be a change in the company’s strategy.

Magna is a strong company rated A- for credit risk by S&P and Moody’s. It would not be easy for them to leave as the buildings have been designed for their purposes.

The new board has already bought back $11m of stock since June. The company has been buying below $50 and that puts some sort of floor under the price.

Granite trades at a discount to Canadian REITs but a large discount to US and European REITs.

The new management have an opportunity to lever up the balance sheet. They should use the debt capacity to make acquisitions in the US. There maybe be some buybacks too.


Be sure to check out the rest of the presentations from Sohn London 2017.