Commercial real estate (CRE) is a broad category for investment, even on the publicly traded exchanges. That can include anything from heartland farmland to dockside warehouse space, from focused trusts to broad index funds, and everything in between.
As the year ends, we thought it would be a good time to look at three very diverse, potentially good investments to make in this wide-open space for the months ahead. One is an international CRE manager and broker. One is a real estate investment trust (REIT) that focuses on retail. And one is an exchange-traded fund (ETF) that tracks industrial REITs.
They are Jones Lang LaSalle (NYSE: JLL), STORE Capital (NYSE: STOR) and Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEARCA: INDS). Below is a look at each.
Jones Lang LaSalle
Jones Lang LaSalle is a Chicago-based company with 250-year-old roots that now operates in 80 countries and employs more than 90,000 people involved in a broad range of CRE professional management and investment services.
Like many an operation deeply committed to office space, JLL has taken a hit during this pandemic year, but it’s still making money. Its third-quarter report showed net income of $152.4 million for the first nine months of the year, down 42% from the $260.7 million reported in the same period of 2019.
While that’s a drop, it’s still black ink, and the company says it expects the improvement since the worst of the pandemic plunge will continue into the new year as more organizations come to JLL for advisory work and to outsource their property and facility management needs. The company also expects to build on efficiencies gained from cost-cutting measures taken in recent months and says it reduced its net debt in the third quarter by $320 million.JLL stock was trading at about $150 a share on Dec. 16, well off its 52-week low of $78.29 but still about 15% off its 2020 high of $178.55, so there appears to be room to turn there. JLL also can be seen as a decent long-term buy. For instance, $10,000 invested with it 10 years ago would now be worth about $18,300. There’s no current dividend, but the company does have a history of intermittent payouts going back 15 years. If they were to resume, that, too, could add to JLL’s worth as an investment.
STORE Capital is a net lease REIT based in Scottsdale, Arizona, with a portfolio -- according to its third-quarter 2020 investor presentation -- of 2,587 properties leased to 511 customers and a 30-year track record that includes a 44% dividend increase from 2014 to 2020. (On Dec. 16, its yield was a solid 4.45%.)
Of course, 2020 was a different animal altogether. STORE’s portfolio is heavily dependent on the performance, naturally, of its tenants, and after a bleak period in which it collected less than 70% of its rent from a portfolio filled with vulnerable businesses (restaurants are its largest single type), the company reported that number had risen to 90% in November.
STORE’s stock has risen sharply after collapsing to as low as $13.00 a share in April. It’s now back within about 15% of the 52-week high of $40.11 it hit in February. And unlike some other retail REITs, STORE has kept up its dividend payouts, including a payout of $0.36 per share declared on Dec. 15, the same as the previous quarter and a penny more than the two before that.
Among those confident in what this REIT now has in store for investors is Warren Buffet and Berkshire Hathaway (NYSE: BRK.A), which as of June 30 owned 24.4 million shares, or about $822 million at the stock’s midday Dec. 16 price of $33.72 a share. That’s about 10% of the whole thing.
My colleague, Millionacres’ Matt Frankel, adds that STORE Capital is Berkshire Hathaway’s only REIT holding and that “while it's not a good idea to buy a stock just because a billionaire investor does, it's worth noting.”
Pacer Benchmark Industrial Real Estate SCTR ETF
You can think of an ETF as similar to a mutual fund that trades publicly on a stock exchange: You get diversification along with liquidity. Many ETFs weigh their portfolios to track popular benchmarks, such as the S&P 500.
When you buy shares of Pacer Benchmark Industrial Real Estate (INDS), you’re buying into a weighted collection of industrial REITs tied up with e-commerce and other logistics networks and with self-storage facilities.
Pacer was founded in 2004 and launched its first ETFs in 2008. INDS, its industrial REITs offering, is one of 27 real estate ETFs tracked by ESG Research’s ETF Database, and as of Dec. 15’s close, it had the highest year-to-date rate of return at 11.09%.
That performance closely tracks Nareit’s year-to-date total return of 9.81% for the 14 industrial REITs it tracks in that segment, a group that was yielding 2.55% as of Nov. 30, compared with 1.91% for INDS as of midday on Dec. 16. It also compares favorably to the FTSE Nareit All-Equity REITs Index's year-to-date return of -8.76%. INDS is currently trading at close to its 52-week high of $37.60.
This ETF has only been around since May 2018, and its net assets of $135.5 million are dwarfed by such competitors as Vanguard’s Real Estate Index Fund (NYSEARCA: VNQ) ($30.3 billion), but if you’re confident in the overall strength of industrial REITs going forward and don’t want to pick and choose within that sector, this is a way to go.
The Millionacres bottom line
Jones Lang LaSalle, STORE Capital, and Pacer Benchmark Industrial Real Estate SCTR ETF are three quite different stock options for investors to consider this month as a very rough year comes to an end. Each of them presents their own unique case on why they could be good buys for the months and even years to come, especially if you think CRE itself is on the road to a sustainable recovery as vaccines spread across the land.