This Beaten-Down Warehouse REIT Could Be a Takeover Target

Industrial Logistics Properties Trust (ILPT 1.39%) was trading at its five-year high last October but since its share price has dropped dramatically. In this video clip from "The Rank" on Motley Fool Live, recorded on June 6, Fool.com contributors Marc Rapport and Jason Hall discuss some of the headwinds that could make it ripe for a takeover. 

Marc Rapport: They are warehouse stock and certainly, that's been a hot sector in the last couple of years. What made this one interesting and why I just bought it, in fact, very recently, I think within the last, maybe week or so, is that they've been beaten down so badly their share price.

This falls under the category of industrial, which nowadays, in the REIT world, pretty typically means warehouse logistics stocks, and the very largest is Prologis (PLD -1.15%). Anyway, their yield right now is, I'd have to look again today, maybe 2%. This one is like 9%.

The big news about this one is they just bought two years ago, no in the last year they bought another REIT called Monmouth, another industrial REIT, and they beat out Sam Zell of Equity Commonwealth (EQC 1.25%) and Barry Sternlicht of Starwood Capital and the other bidders when this minnow beat the whales and swallowed another company about its own size. Or maybe they knew what they were doing by the way when they backed out. [laughs]

It now has a portfolio of about 400 properties. It's about 99% occupied. It's got a lot more diversity. Originally, almost all of its income, well over half anyway was from Hawaii. They had all this Hawaiian coverage.

Jason Hall: Yeah, I think half of it is still from Hawaii.

Rapport: Is still, yeah.

Hall: Yeah, it's 53% of cash flows.

Rapport: Well, and they're just incredibly highly leveraged too, and they lost money. They managed to lose money because of all the leveraging and all the financing and they sold off some properties. They have some silent partners and own a lot of their properties. Their FFO that has missed estimates three quarters in a row or three of the last four quarters. They're facing the same headwinds and a lot of logistics stocks are with maybe increased concerns about decreasing demand, especially from Amazon (AMZN -2.56%). But meanwhile, so why did I buy it?

Matt Frankel: Yeah, I feel like you're trying to talk yourself out of buying your retroactively. [laughs]

Rapport: Well, the price at FFO ratios is really low, it's like 7.5%. The yield is up to 9% as I mentioned. The dividend has been the same since it went public in 2018. But, here's why I bought it. I think the dividend is going to keep up their cash flow is good. Their finances look pretty similar. Their rent renewals to a lot of companies in this business. I think they're a takeover target. Am I allowed to say that? I don't know.

Hall: Heck, yeah, you can say that.

Rapport: Yeah. That's one of the reasons I bought it I think the company that owns it is so sternly managed. The president has only been in place for about a year or no, since March. She's a senior executive in the company, their holding company, that this isn't even her only gig. She's got a portfolio that looks pretty impressive as the other office industrial retail properties. That's the reason I bought it. I figured it was so cheap that if it does become a takeover target, there will be some nice premium there, and if not, it will keep generating some income. I'm really an income investor at this point in my life. I should point out, by the way, my two largest stocks are Amazon and Google [a part of Alphabet (GOOG -1.10%) (GOOGL -1.23%)]. So, I'm not that out of the woods, but for income which I'm really focusing on now, I just really like REITs. Anyway, sorry, that's what I got.