Without considering the (hidden) valuation of the real estate, LNF is still trading at 13x Forward P/E, a fair valuation given that LNF is a mature company with growth expected to be around 3% going forward, but the company generates very healthy cash flow and possesses a strong balance sheet. We think with the favourable macro backdrop of declining interest rates, real estate and interest rate-sensitive assets, in general, would experience a tailwind for some time despite the recent volatility. We think the chance of a REIT spin-off is still likely to happen given the change in the CEO recently, who is committed to unlocking shareholder value through the meaningful discount of the real estate portfolio (5M sq. ft of prime real estate) and the ability to generate cash consistently. We think the risk/reward of LNF here is quite favourable.
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