Third Avenue Management, an investment management firm, published its “Real Estate Value Fund” first quarter 2022 investor letter – a copy of which can be downloaded here. For the first quarter of the calendar year, the Fund generated a return of -7.40% (after fees) versus -3.79% (before fees) for the Fund’s most relevant benchmark, the FTSE EPRA NAREIT Developed Index. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Third Avenue Management Real Estate Value Fund mentioned W.W. Grainger, Inc. (NYSE:GWW) and explained its insights for the company. Founded in 1927, W.W. Grainger, Inc. (NYSE:GWW) is a Lake Forest, Illinois-based Fortune 500 industrial supply company with a $25.3 billion market capitalization. W.W. Grainger, Inc. (NYSE:GWW) delivered a -4.35% return since the beginning of the year, while its 12-month returns are up by 15.31%. The stock closed at $495.71 per share on April 27, 2022.
Here is what Third Avenue Management Real Estate Value Fund has to say about W.W. Grainger, Inc. (NYSE:GWW) in its Q1 2022 investor letter:
“Held in the Fund since 2019, Grainger plc (“Grainger”) is a UK-based real estate operating company that is the leading owner, manager, and developer of multi-family properties in the supply-constrained markets of the UK (where the multi-family business is more commonly referred to as the private-rental sector or “PRS”). At the end of the 2021 calendar year, the company owned a portfolio of 7,100 PRS units that were 95.0% leased with two-thirds of the value in the greater London area and the remaining one-third in the other UK regions.
In addition to its stabilized portfolio of “market-rate” PRS properties, Grainger also owns a portfolio of approximately 2,500 “rent-controlled” units dating back to its roots as a more diversified residential company (Grainger was founded in 1912). Due to the regulated nature of these properties, only about 8-10% of the units can be disposed of each year. However, the proceeds from these sales, as well as the earnings the company retains as an operating company as opposed to a REIT, are being utilized to build out its strategic development pipeline with planning for almost 8,400 additional PRS units- including 3,000 very well-located units through its joint venture with the Transport for London (TFL).
Despite being well-capitalized with a loan-to-value ratio of approximately 30% alongside prospects to self-finance its development pipeline that is expected to increase its recurring cash flows by more than 90% through 2025, Grainger’s common stock continues to trade at a discount to its stated NAV (which is provided annually based upon third-party appraisals under International Financial Reporting Standards). This inefficiency may very well relate to Grainger’s status as an operating company, not a REIT, which leaves the company out of certain Real Estate indices and mandates. It is not inconceivable, though, that as the company further builds out its stabilized PRS portfolio it may ultimately elect REIT tax status, serving to boost its annual dividend and widening its potential investor base. Should such a modification not materialize, and the price- to-value gap remain, there would also likely be a great deal of strategic interest in the platform given Grainger’s scale in this emerging asset class within the UK.”
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Our calculations show that W.W. Grainger, Inc. (NYSE:GWW) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. W.W. Grainger, Inc. (NYSE:GWW)) was in 28 hedge fund portfolios at the end of the fourth quarter of 2021. W.W. Grainger, Inc. (NYSE:GWW) delivered a 2.93% return in the past 3 months.
In April 2022, we also shared another hedge fund’s views on W.W. Grainger, Inc. (NYSE:GWW) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
