My approach to choosing three industrial real estate investment trusts (REITs) to buy in August is simple: Find three issues that pay an attractive dividend with some history of stability to support that payout and maybe grow the price of the stock itself.
To explain my perspective, I'm a boomer with no retirement plans and a portfolio heavy in cash and other conservative investments.
It's no fun to see money market yields close to zero, but I don't intend to expose these savings to a lot of risk. I do want to make more of it with some of it and without a lot of angst as the market goes through its inevitable ups and downs.
That makes REITs attractive in the first place; they're required to pay out most of their income in dividends, which should, in theory, support a fairly stable stock price with some upside, too.
Further, I thought I'd focus on industrial REITs, which are widely considered to be taking less of a beating in the pandemic economy because of the long-term leases and relative stability of the companies that occupy their spaces.
So, I singled out three industrial REITs, each in very different businesses but with returns that beat the current average industrial REIT yield of 3.09%, whose reports and business models merit serious consideration for an August buy.
They are Global Self Storage (NASDAQ: SELF), Industrial Logistics Property Trust (NASDAQ: ILPT), and STAG Industrial (STAG: NYSE). Other than their nice dividend yields, these three issues have little in common. So that adds some diversification, too.
Here's a quick look at each:
Global Self Storage
Global Self Storage is a New York City-based owner-operator and third-party manager of 13 self-storage properties in Connecticut, Illinois, Indiana, New York, Ohio, Pennsylvania, South Carolina, and Oklahoma.
With a market cap of about $36 million, this is by far the smallest of these three operations. Shares closed Friday, Aug. 7, at $3.86, about midway between a 52-week low of $2.65 and a high of $4.95. Adjusted funds from operations (AFFO) were $388,000, or $0.04 per diluted share, and April rent collections were a strong 97%, which speaks to the resiliency of that niche. (Being widely deemed essential in shutdown orders didn't hurt either.)
Global Self Storage reported a net loss of $356,000 for the first quarter, attributing that to taxes and a change in auditors, and did report that same-store revenues were up 2.1%, same-store operating expenses were down 8.1%, and same-store net operating income was up 10.4% from the year-ago period.
The company said it had converted one location to a climate-controlled facility and expanded another in the quarter and was seeing growth in the third-party management platform it sells to other self-storage operators. It also has more than $10 million in capital resources, which represents more than a third of its market cap, to commit to expansions and acquisitions, so there should be enough growth there to create income that can sustain the $0.065 per share it's paid in dividends each quarter for the past five years.
The company also was just added to the Russell 2000 list of microcaps so should gain some extra exposure there, which might help add to share price, especially if it posts strong second quarter results when they come out soon.
Self-storage itself is a solid niche to consider, and Global Self-Storage, with its dividend history and depressed price, could be an attractive buy right now.
Industrial Logistics Property Trust
Industrial Logistics Property Trust owns and leases industrial and logistics properties across the country but has an interesting concentration. While it's based in Newton, Massachusetts, a significant chunk of its business is in a state not typically considered on the beaten highway for a logistics play: Hawaii.
ILPT has a market cap of about $1 billion and 301 properties in its portfolio and currently claims an occupancy rate of 98.8%. The REIT went public in 2018 and says it has made about $1 billion in acquisitions since then.
It has that handsome dividend yield of 6.08%, but since it only went public two years ago, it doesn't have as long a history to look at as many of its competitors. Its stock closed at $21.70 on Friday, Aug. 7, and it has a 52-week low and high of $12.95 and $24.18, respectively.
The company says about 40% of its annualized rental revenues come from the 16.8 million feet contained in the 226 buildings, leasable land parcels, and easements it has on Oahu. The other 60% comes from the 27 million feet in the 75 industrial and logistics properties it has across 30 mainland states.
While that sounds like a lot of exposure to an offshore island for a logistics company, it's worth noting that most of the Oahu business is wrapped up in long-term ground leases. That means tenants who have built their own buildings and operate their businesses on ILPT's land bear much of the operating expenses.
In the second quarter 2020 results it announced on July 29, the company said it has occupancy of nearly 99% and recently renewed and reset leases on more than 1.9 million square feet that had a weighted average rental increase of 23.1% over prior rates.
Net income for the quarter also was up, at $14.8 million, or $0.23 per diluted share, from $13.1 million, or $0.20 per diluted share, from Q2 2019. The company also said that it collected 97% of its rent in the second quarter after granting 42 deferrals to tenants obligated to catch up on back rent beginning in September.
Here's what its website says: "We believe the U.S. retail industry is experiencing a major shift away from stores and shopping centers to e-commerce sales platforms and that this change is causing increasing demand for industrial and logistics real estate. We intend to expand our business by focusing on properties that may benefit from the growth of e-commerce."
With a concentration in ground leases, tenants like Amazon (NASDAQ: AMZN), and confidence that Hawaii itself will bounce back eventually, as well as a big business hosting logistics sites in 30 other states, it seems like ILPT is a decent long-term play for income and maybe some moderate growth.
STAG Industrial is a 10-year-old, Boston-based REIT that focuses on acquiring and operating single-tenant industrial properties. As of June 30, the company says, it has an enterprise value of $6 billion wrapped up in 457 buildings encompassing 91.8 million square feet in 38 states. It has a nice mix of manufacturing plants, warehouses, and distribution centers.
On the one hand, STAG looks like the poster child of REIT reliability: passing through to you, the investor, the proceeds from single-tenant industrial properties leased for the long-term by corporations able to pay modestly escalating rents.
On the other hand, the coronavirus pandemic staggered STAG stock, which plunged to $18.31 a share on March 31 after hitting $33.47 on Feb. 12. It's since bounced back to $33.76 at market close on Friday, Aug. 7. That's it's 52-week high, by the way, so I'm looking at STAG as a long-term investment, one with some growth potential while providing yield that's way better than, say, that money market cash you might have sitting around.
The company has, in fact, boosted its dividend yearly since its inception and pays it monthly instead of quarterly, much like that granddaddy of REIT reliability, Realty Income.
In the Q2 20 report STAG released on June 30, it said its portfolio occupancy was 97% with an average weighted lease term of 5.1 years at $4.47 per square foot. Net income was $19.32 million, sharply higher than the $14.17 million reported in the year-ago quarter, and net income per share was $0.12, up from the $0.10 in the year-ago quarter.
That's solid performance during trying times, and with a diverse tenant base geographically and by industry (check out page 17 of the report for lists), and a creditable history of dividend payouts, I'd consider STAG Industrial a good buy in August, especially for a retirement portfolio.
Three promising choices
Global Storage, Industrial Logistics Property Trust, and STAG Industrial have quite different portfolios but do share this: They're in a promising position to maintain dividend payouts at the same time as potential for growth in their share prices.
They're a diverse trio -- with their varied emphasis on storage, logistics, and manufacturing -- and each would be a solid choice to add to your portfolio.