As that table shows, the REIT has significantly underperformed the S&P 500 since its spinoff, generating a 5.9% total annualized return versus 12.3% for the broader market. To put that into perspective, an investor who bought $10,000 of its stock at the spinoff would have seen that grow into $11,820. For comparison's sake, that same amount invested in the S&P 500 would be worth $14,050. Clearly, the REIT isn't on a path to mint millionaires faster than the S&P 500.
A look at the millionaire-making potential of Industrial Logistics Properties Trust
As the old investment mantra goes, past performance isn't indicative of future results. Thus, we can't definitively say Industrial Logistics Properties can't mint millionaires from here. However, it needs to ramp up its investment returns considerably.
On the one hand, there's reason to believe it can hit the accelerator. That's because it focuses on owning warehouse and distribution properties crucial for supporting the growth in e-commerce. The company currently owns 301 properties with 43.8 million square feet of rentable space, located in 31 states. However, it's worth noting that 226 of those properties are in Hawaii, comprising 38.3% of its total square feet and supplying 40.7% of its rental revenue.
Those properties have a long history of strong occupancy and rent growth, as the island state relies on imports -- and therefore logistics facilities -- to support its economy. Meanwhile, the rest of its properties in the other 30 states are crucial to supporting e-commerce. Amazon (NASDAQ: AMZN) is its largest tenant, at 15.9% of its annualized revenue, while FedEx (NYSE: FDX) and UPS (NYSE: UPS) are in the top six, at 3.7% and 1.9%, respectively. Because of that focus on supporting the fast-growing e-commerce sector's logistics needs, Industrial Properties Trust has lots of growth potential.
That's evident in the industry's outlook. According to one estimate, the U.S. needs to build an additional 1 billion square feet of new logistics space by 2025 to support e-commerce growth. This outlook suggests that Industrial Logistics Properties has lots of expansion potential.
However, one concern with the company is its balance sheet. It has an elevated leverage ratio of 7.3 times debt-to-EBITDAre, limiting its ability to make new investments. The company has been working to address this issue via a $680 million joint venture it formed earlier this year. It recently brought in a second partner, enabling it to raise an additional $108 million of cash to repay some debt. The deal also reduced its interest in the JV from 61% to 22%. As a result, it no longer has to record the associated debt on its consolidated balance sheet.
If the company can continue to find creative financing solutions, it should be able to keep expanding its portfolio -- key to creating long-term shareholder value.
Not off to a great start, but the future looks bright
Industrial Logistics Properties hasn't looked like a millionaire-maker stock since its spinoff. It does operate in a fast-growing sector, which suggests it could pick up the pace. However, given its lackluster returns so far and elevated debt levels, it seems an unlikely candidate to deliver the returns necessary to mint millionaires from here.