Industrial REITs own and manage property that serve a wide spectrum of tenants, from manufacturing to storage to distribution.
It's the latter -- serving as distribution points for the massive world of e-commerce -- that has driven much of the attention and investment in recent years, and there seems little reason to believe that will change anytime soon.
Nareit lists 13 REITs in the industrial category. These REITs had posted a total return of 31.60% year to date as of Aug. 31, compared with 12.17% in all of 2020, and were yielding 2.05%. Industrial real estate is hot, hot, hot, but there are certainly some storm clouds.
Right now, things look particularly spooky for global logistics this Halloween season, with dire warnings of a total global supply chain collapse, but the optimist in me says that sheer demand for those services -- and man has been figuring out how to move goods around the known world since ancient days -- creates the imperative to work through this.
Here are three logistics-focused REITs that seem to stand to do well in the near term and beyond and merit consideration as October buys.
Industrial Logistics Properties Trust
Industrial Logistics Properties Trust (NASDAQ: ILPT) has a portfolio of 291 what it calls industrial and logistics properties comprising 35.2 million square feet that's 99% occupied by 259 tenants, holding average remaining leases of about 9.4 years.
And if you buy into this REIT and want to see the properties for yourself, have some fun! About half of ILPT's annualized rent revenue comes from 226 properties it has on Oahu, as in Hawaii. The rest are spread across 30 states on the mainland.
While that might seem far-flung and concentrated, and in a small market of its own, keep in mind that Hawaii is way out there sort of halfway between the world's largest consumer market and some pretty dominant manufacturing centers, such as China and Japan.
But ILPT is not sitting still. As its president and CEO, John Murray, noted in its 2Q21 earnings call on July 29, the company has just bought an operating, fully leased site in Columbus, Ohio, and another 14-acre site in the Dallas market. Plus, during the quarter it executed 564,000 square feet of leases and rent re-sets, with an average rent rollup of 18%.
ILPT's one-year annual return as of Sept. 30 was a very healthy 31.26%. The Newton, Massachusetts-based company only went public in January 2018 at $24.00 a share and was trading at $25.61 per share late in the day on Sept. 30. That's good for a yield of 5.15% based on an annual dividend of $1.32 per share, and it's paid $0.33 a share each quarter since July 2018. Its current payout ratio based on 12 months of earnings is 70.97% and 54.73% based on cash flow, which both appear very sustainable.
Prologis (NYSE: PLD) is among the largest of REITs regardless of vertical and the largest in the industrial segment. With a portfolio of nearly 1 billion square feet and about 5,500 customers, this REIT is so big that it has a growing logistics career training program in six U.S. cities, with plans to train 25,000 people by 2025.
Those folks and more will be needed to meet the needs of a tenant lineup led by such brand names in logistics demand as Amazon, DHL, FedEx, UPS, and Home Depot.
The top brass is confident. "Demand for logistics space is robust and diverse, and operating conditions remain the healthiest in our 38-year history. Vacancies in our markets are at all-time lows, contributing to record rent growth and valuation increases," company chairman and CEO Hamid R. Moghadam said in Prologis' 2Q21 earnings announcement.
Prologis stock has posted a one-year annual return of a very respectable 27.21% as of Sept. 30 and was at $126.80 per share in late-day trading. That's good for a yield of 1.99% based on an annual dividend of $2.52 per share, a quarterly payout the San Francisco-based logistics giant has grown 31.82% in the past three years. Its current payout ratio is 66.32% based on 12 months of earnings and 67.45% based on cash flow.
Terreno Realty (NYSE: TRNO) has a narrow focus in a big business, operating exclusively in the Los Angeles, San Francisco, New York City-Northern New Jersey, Seattle, Miami, and Washington, D.C. markets.
Here's why: "Each has large and growing consumer populations," Terreno says of its six-market strategy. "Each has highly developed airport, seaport, and highway infrastructure for rapid distribution of goods. All six markets have significant physical and regulatory barriers to development of competing properties."
Terreno has been actively investing in these key logistics markets, including five acquisitions since the beginning of August, at the same time raising its dividend by 17.2%. As of Aug. 4, that portfolio included 234 buildings containing 13.8 million square feet on 27 improved land parcels that were 98% leased.
Terreno stock has posted a one-year annual return of 14.46% as of Sept. 30 and was at $63.80 per share in late-day trading. That's good for a yield of 1.83% based on an annual dividend of $1.16 per share, a quarterly payout the San Francisco-based company has grown 33.33% in the past three years. Its current payout ratio is 80.56% based on 12 months of earnings and 67.89% based on cash flow.
The Millionacres bottom line
Each of these three real estate stocks have been adding to their portfolios and were able to raise the rent in the process in many cases. While they're posting lower yields by percentage compared with a lot of REITs, keep in mind they're in a business where stock valuations have been driven up by market participation in an ongoing boom market for logistics real estate. And they each look like good buy-and-holds to consider this month.