The industrial sector of commercial real estate (CRE) is doing incredibly well these days. As online shopping increases, the demand for sites to manufacture products and store goods is higher than ever.
Real estate investment trusts (REITs) let investors with less capital and time participate in the potential gains of industrial CRE right now. Let's take a look at three of the best industrial REITs you could buy right now.
Industrial real estate includes:
- refrigeration/cold storage,
- telecom/data hosting centers,
- light manufacturing,
- research and development (R&D),
- biotech, and
- showroom properties.
According to the NCREIF property index, the industrial sector has achieved an impressive 13.86% return from Q3 2018 to Q2 2019 and is currently the top-performing property type in CRE. Occupancy rates have consistently remained above 95% and the sector as a whole has provided consistent year-over-year rental growth.
There are currently 14 publicly traded industrial REITs with a total market cap of $111.67 billion. However, industrial REITs aren't high-paying dividend investments compared to other REIT types like apartment REITs or mortgage REITs. Industrial REITs act more like growth stocks than top-yielding dividend players.
Currently, multiple industrial REITs are overpriced. While the top three industrial REITs described below present potential growth and opportunity, investors may fare better by waiting for pricing to settle some before buying. Always conduct your own due diligence to determine if a company meets your investment principles and risk threshold or if it's the right fit for you.
|Company||Market Capitalization||Dividend Yield|
|Americold Realty Trust (NYSE: COLD)||$7.31 billion||2.10%|
|Stag Industrial Inc. (NYSE: STAG)||$4.07 billion||4.76%|
|Prologis (NYSE: PLD)||$56.55 billion||2.47%|
Three of the best industrial REITs to buy right now
1. Americold Realty Trust
Americold Realty Trust is one of the newer industrial REITs on the block, becoming public in January of 2018. It’s the only publicly traded industrial REIT that focuses on the operation and development of temperature-controlled warehouses. It controls 178 properties and one million square feet across five countries, including facilities for some big retail names like Trader Joe's, Safeway, Kroger, and Kraft.
While the majority of its income stems directly from warehouse storage facilities, it also has a third-party management and transportation branch accounting for roughly 6% of its net income. According to 2019 Q3 results, Americold has a total revenue of $466.2 million, a 16.0% increase over the same quarter last year.
The REIT’s average occupancy is lower than the industry average at 85%, but its consistent earnings, strong track record, and a core FFO of $0.87 year-to-date make this one of the best industrial REITs right now.
2. Stag Industrial, Inc.
Stag Industrial, Inc. focuses on purchasing and managing single-tenant industrial properties with 81.2 million square feet under management across 38 states. Third-quarter earnings, which were reported on Oct. 30, 2019, had the REIT’s revenue at $102.42 million with a core FFO of $0.46, a 2.2% increase compared to Q3 2018.
Stag Industrial, Inc. is growing rapidly, having acquired 2,000,000 square feet of industrial space in the last two years. Stag prides itself on "green leasing." Its newest project is two rooftop solar systems in Minnesota that are projected to produce power for around 200 households.
Offering the highest dividend return of the three REITs discussed today, Stag’s coverage ratio is 4.6 times, which is close to par for the industry standard for equity REITs at 4.7 times, placing it within a safe leverage range.
Prologis is one of the larger industrial REITs with holdings in 19 countries across four continents. Founded in 1983, this company has grown tremendously, with $111 billion in assets under management and housing 797 million square feet.
Prologis's 2019 third-quarter press release produced positive news with the company having "record rent increases and significant earnings from our Strategic Capital business," according to Hamid R. Moghadam, chairman and CEO. Core FFO increased to $3.30 per share.
Additionally, occupancy remains high at 97.5% and the company has $4.9 billion in liquidity. While the REIT has a strong past performance and a coverage ratio of 3.9 times, that's less than the industry standard for equity REITs of 4.7 times. Before buying, consider the risk of this stock and keep an eye out on its pricing -- it may be overpriced at this time.
Look beyond the best industrial REITs to buy now
The demand for industrial real estate will likely continue because of its integral role in the global economy. Investing in industrial REITs can be a great opportunity to participate in the continued growth of this sector.
Just because these are some of the best industrial REITs to buy right now doesn't mean they're the only options. There are plenty of other good REITs available. Vet the possibilities and find the right REIT for you.