Industrial real estate investment trusts (REITs) are a diverse group, covering warehouses, factories, storage facilities, and more. Because they’re REITs, they have to pay out at least 90% of their taxable income as dividends, and to do that, they have to have taxable income. Industrial REITs are a reliable sector to look for stocks that have a history and reasonable prospects of continuing to do just that.
Here we’ll look at three to consider buying in March: Duke Realty (NYSE: DRE), Terreno Realty (NYSE: TRNO), and Innovative Industrial Properties (NYSE: IIPR).
Indianapolis-based Duke Realty bills itself as the nation’s largest pure-play, domestic-only logistics REIT. At year’s end, it owned interest in 534 properties, primarily warehouse properties with clear ceiling heights of at least 28 feet, encompassing 159.4 million square feet in 20 major markets.
A client list that includes a number of brand names such as Amazon (NASDAQ: AMZN), UPS (NYSE: UPS), and Target (NYSE: TGT) speaks to the size of its facilities and the reliability of its tenant base. And take a look at its press release page to see its near-daily announcements of new leases and extensions. In its fourth-quarter earnings report, the company also said it was able to raise the rent on its second-generation leases by 12.9% in 2020.
Duke Realty declared a fourth-quarter dividend of $0.255, the same as the third quarter, and has boosted the payout 27.5% since 2018.
Duke Realty was yielding 2.62% based on its March 5 closing price of $38.96. That’s 10.3% off its 52-week high of $43.45, and interestingly, this issue is 99.2% held by institutions with only 1.43% of its stock held in short interest. A retirement portfolio stock, it seems.
San Francisco-based Terreno Realty does its thing in six major coastal U.S. markets: Los Angeles, northern New Jersey/New York City, San Francisco, Seattle, Miami, and Washington, D.C.
The company keeps it simple, focusing on buying and operating smaller properties located on the infrastructure highways from ports to the interior and vice versa, making its space attractive to clients who need that flexibility and accessibility.At year’s end, Terreno Realty said it owned 222 buildings totaling about 13.2 million square feet and 25 improved land parcels consisting of approximately 91.5 acres. These buildings were 98% occupied, and the company was able to increase its cash rents by 22.1% over the course of 2020.
The company is also still actively acquiring properties, including most recently paying $33.8 million for a fully leased industrial distribution building in Kirkland, Washington, and $10.6 million for one in Carlstadt, New Jersey.
The latter acquisition was vacant when bought but it probably won’t be for long, based on Terreno’s record of successfully choosing sites it can keep fully occupied. By industrial REIT standards, Terreno’s individual properties tend to be on the smallish side, but they add up to a solid portfolio that has delivered respectably over the past several years.
In February, Terreno declared a dividend of $0.29 per share for the first quarter, the third-straight quarter for that payout. That follows four straight quarters at $0.27 per share, and before that four-straight quarters of $0.24 and then before that $0.22 per share. In fact, Terreno has consistently raised its dividend every few quarters since 2013.
The company’s stock was yielding 2.08% at Friday’s March 5 closing price of $55.90 per share, still 13% off its 52-week high of $64.24. Its 52-week low is $42.12 from April, not nearly the dip many equities saw in the pandemic plunge.
Innovative Industrial Properties
Innovative Industrial Properties (IIP) owns and/or operates 66 marijuana growing and processing operations in 17 states, and its market promises to grow as fast as legalization spreads across the country.
The San Diego-based company focuses on medical marijuana and is the first publicly traded REIT to also provide working capital to growers. Clients can avail themselves of a sales-leaseback program in which they sell the property and then sign a triple net lease with IIP that provides the grower with liquidity otherwise not typically available in a market with a product still not legal federally.
The company was founded in 2016, and so far, so good. In its fourth-quarter 2020 report, IIP said for the year it grew total revenue, net income, and adjusted funds from operations (AFFO) by 162%, 191%, and 180%, respectively, over 2019.
IIP also declared $4.47 per share in dividends for the year, 58% more than in 2019, and closed on more than $620 million in new acquisitions and additional investments at existing properties, including 20 new property acquisitions.
Because it missed analyst estimates for fourth-quarter earnings, after regularly beating them in recent quarters, IIP stock has taken a hit of late, closing on March 5 at $173.74, nearly 22% below its 52-week high of $222.08 from Feb. 24. Still, that’s good for an annual yield of 2.85% based on a dividend payout of $4.96 per share in the past four quarters.
The Millionacres bottom line
While not providing eye-popping yields, these three REITs have provided respectable, reliable yields and are well-positioned in their respective niches to continue for years to come. Each deserves consideration in a buy-and-hold portfolio with an eye on income as well as some growth.
There is a caveat, however: These yields are attractive compared to interest from bonds, but if the latter rises, one can expect downward pressure on these companies' stock prices. But their underlying soundness should keep that dividend payout coming.