John Jannarone, editor in chief of IPO Edge, believes that shares of Colony Capital could double from current levels. He runs through the company’s struggles in recent years, discusses why the undervalued stock may finally be ready for a turn higher, and reviews exactly how to trade this beaten-down REIT. Filmed on July 22, 2019.
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Unlocking Value in a Beaten-Down REIT (w/ John Jannarone)
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Transcript:
For the full transcript visit: https://rvtv.io/2NwPHFV
JAKE MERL: So, can you please break down some of those assets? And why you're so bullish?
JOHN JANNARONE: Yeah. So, let's just take one of the REIT assets. So, there are three REIT within this REIT. And one is- that's most interesting to me, I think, is the industrial REIT. And these are real hot thing right now. It's not the sexiest topic, I guess. But it's just warehouse space. But it is a big deal, because people are doing Amazon stuff. So, more and more retailers are storing in massive facilities, rather than having storefronts, and they're getting shipped out. So, they're trading at very, very low cap rates, which means you see if you flip it over at cap rates at a high multiple, so if you put a reasonable cap rate comparable to some of the recent transactions, that's a pretty valuable asset.
JAKE MERL: So, what other assets are you looking at?
JOHN JANNARONE: Well, the other one that I think is interesting is the asset management piece. So, that's like a Blackstone or an oxidative where they are the company that manages assets. And there are a few of those at trade. And what's interesting is that there are a few other players out there like say Carlisle that doesn't have much in the way of real estate focused asset management. So, a Carlisle might say all of the sudden, we can become more like Blackstone if we pick this thing up. By the same token, Blackstone might just want more real estate. But I think that the brand of Colony Capital is still strong. And that asset manager really should be getting more value than it is in the market right now.
JAKE MERL: So, this company has a lot of different moving parts. How did this company first get created?
JOHN JANNARONE: Well, this company's been around for quite some time. And I think it's 20 or 30 years. But in its current form, the most drastic change that's happened recently is the deal they closed in early 2017. That was two different also listed companies, which had a hodgepodge of assets. And that's how you wound up with this thing that's got a lot of traditional REIT kind of real estate. But then there's alsoI didn't even get into this other part, there's this just lump of LP interests and all kinds of different funds. So, this is a very, very diverse company. And I think that's part of the reason why it's misunderstood. You get three sell side analysts who looked at it, and it doesn't really fit in any industry group so it's a little bit lost out there.
JAKE MERL: So, you're saying when you add up all these different parts of the business, you get $11 per share, not $5 per share. So, what's the catalyst that you see it getting to $11 per share?
JOHN JANNARONE: Well, I think that the pressure from Blackwells, the activist, is really enough to be a catalyst. My hunch is that these guys are probably going to start selling something in a significant way. I have a source close to Blackwells who also told me that the steps they've taken so far, which is to sell a little bit of real estate, which happened in the last few weeks, actually, since my article posted, is not sufficient.
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