Who would have thought just a couple of years ago that, soon enough, some of the most desirable real estate around would be largely empty -- that's empty, not vacant.
We're talking about warehouse space. E-commerce had already been creating new demand for storage space all along the global supply chain, and the pandemic knocked that surge into overdrive. Now, warehouse owners/operators are cruising along with record-low vacancy rates and the ability to sharply raise rents, rewarding owners and investors alike. Warehouse operators are not all alike, though. Here's a look at a pair of real estate investment trusts (REITs) that each has its own respective niche and market that look solid now and even more promising going forward.
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Americold is a leader in temperature-controlled warehouses
Americold Realty Trust (COLD 3.60%) bills itself as the world's largest publicly traded REIT of its kind. The Atlanta-based firm owns and operates more than 1.5 billion refrigerated cubic feet of storage in 248 warehouses on four continents. That makes it an essential part of the producer-to-consumer food chain that has been growing since Clarence Birdseye began freezing fish in the 1920s.
The market did get a little icy toward Americold recently, pushing its stock to a 52-week low of $27.88 on Oct. 6 amid concerns over labor supply and costs, but it's since shown some recovery. Shares closed at $32.41 each on Dec. 9, good at that level for a yield of 2.64% based on an annual dividend of $0.88.
On Dec. 7, the company declared a dividend of $0.22 per share, that was after reporting third-quarter 2021 results that included a year-over-year (YOY) drop in net income from $12.4 million to $5.3 million, but a jump in core funds from operations (FFO) to $61.5 million from $58.6 million in Q3 2020.
The company also experienced some significant internal changes, announcing in November that it had replaced its CEO with a former Tyson Foods executive and added to its board the chief supply chain executive for Best Buy.
Americold reported in November that it had added three more facilities during Q3 while growing its occupancy by 657 basis points YOY to 75.9%. The company's contracts contain fixed commitments that ensure customers have space available when needed, Americold pointed out, and reduced food production volumes affected those occupancy numbers. Whatever the new normal looks like when the pandemic mercifully subsides, it stands to reason the demand for properly stored food would remain fairly constant.
Industrial Logistics Properties Trust makes hay in Hawaii
Shareholders who want to check out what they bought with Industrial Logistics Properties Trust (ILPT +0.33%) can make it a real vacation. That's because many of this Boston-based REIT's 294 properties are in Hawaii.
In fact, the company said in its Nov. 5 investor presentation that it derives 49% of its annualized revenue from its properties there, although it has holdings in 32 states altogether. Hawaii makes sense as a major stopover for shipping traffic between the U.S. and Asia, of course, and ILPT's warehouse portfolio is doing just fine. It's 99% occupied, with nine years of average weighted remaining lease terms altogether, enabling it to raise the rent, especially in Hawaii, where there's scarce room for competitors -- or ILPT -- to expand.
But expand ILPT will. Despite its size -- about $1.5 billion in market cap and $2.7 billion in enterprise value -- ILPT bested Sam Zell's Equity Commonwealth and Barry Sternlicht's Starwood Capital and won the right to acquire larger fellow industrial REIT Monmouth Real Estate Investment (MNR +0.00%) for about $4 billion in cash.
The deal is expected to close next year and will result in ILPT having 339 properties with 50 million rentable square feet in 39 states, of which 99.3% is occupied. While that will diversify the business, ILPT will still see 34% of its annualized revenues come from Hawaii and 21% of the rent from a single company: FedEx.
ILPT stock closed at $22.67 on Dec. 9, good for a nice yield of 5.71% based on an annual dividend yield of $1.32. And while the Monmouth deal will result in a lot of debt for a company with a relatively concentrated geographic and customer base, demand for warehouse space seems unlikely to abate, so this seems like a deal that could pay off well into the future for ILPT shareholders.
Two different business models, each with promise
Industrial Logistics Property Trust and Americold are somewhat different from a lot of warehouse REITs and other owner-operators, but they do have this in common: a somewhat unique but vital role in the global supply chain that should allow them and their shareholders to prosper from reliable, rising rental revenue, steady dividend income, and a decent potential for appreciating stock price. They both appear to be good candidates for a long-term buy-and-hold strategy.
