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Industrial Warehouse

Better Buy: Plymouth Industrial REIT vs. Monmouth Real Estate


Apr 11, 2021 by Matthew DiLallo
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The industrial real estate sector is growing at a brisk pace. It's benefitting from dual tailwinds: the accelerated adoption of e-commerce and shifting inventory management practices. These two factors are driving demand for logistics properties like warehouses. That's helped drive growth for most industrial real estate investment trusts (REITs), powering the subgroup to produce sector-beating total returns since the start of last year.

Two Industrial REITs benefitting from these tailwinds are Plymouth Industrial REIT (NYSE: PLYM) and Monmouth Real Estate Investment (NYSE: MNR). Here's a closer look at the case for and against buying either one.

The case for and against Plymouth Industrial REIT

Plymouth currently owns and manages 173 buildings with more than 26 million square feet of space across 15 markets. The REIT takes a differentiated approach from its competitors by focusing on secondary markets. It believes that these locations will deliver faster growth and superior returns compared to primary ones. Further, it owns a diversified industrial real estate portfolio that includes single and multi-tenant distribution centers, warehouses, light industrial, and small-bay industrial properties.

Demand trends for warehouse/distribution space and flex/R&D properties have been growing in recent years and should continue expanding. That should drive down vacancy and push up rental rates, enabling Plymouth to generate more income from its existing portfolio. Another key growth driver for Plymouth is acquisitions. The company has spent more than $800 million acquiring industrial real estate since its IPO. It has plenty of access to capital to continue expanding its portfolio, including a joint venture with Madison International Realty to pursue value-add and opportunistic industrial properties in select markets.

However, two potential drawbacks with Plymouth are its focus on secondary markets and diversification beyond warehouse properties. One of the drivers of industrial real estate demand is the e-commerce sector, which is growing fastest in primary markets. That's why most of the largest industrial REITs focus on those properties in those markets. Plymouth's differentiated strategy might cause it to underperform those rivals if the tailwinds currently driving them continue strengthening.

The case for and against Monmouth Real Estate Investment

Monmouth owns a similarly sized portfolio with 121 properties containing 24.6 million square feet of space. However, it has a different strategy. The REIT focuses on single-tenant industrial properties net leased to primarily investment-grade tenants. It owns properties across 31 states, focusing on major seaports, intermodal ports, and airports. Overall, 82% of its rental revenue comes from tenants with investment-grade credit, implying they can meet their financial obligations during an economic downturn.

Monmouth has a long history of growing its portfolio, driven by its focus on providing warehouse space to companies benefitting from e-commerce. It expands by making acquisitions and developing new logistics properties. It currently has a vast land position, giving it ample room to expand its portfolio by developing additional warehouse buildings on land near its existing facilities.

However, one concern with Monmouth is its outsized exposure to logistics giant FedEx (NYSE: FDX). That company currently accounts for 55.1% of its annual rent. That's significant exposure to a single company, even one as strong as FedEx.

Another issue with Monmouth is that it recently received a privatization offer by Blackwell Capital at $18 per share in cash. Monmouth rejected that bid, saying it wasn't in the best interest of shareholders. It launched a strategic review, which will include running a complete sale process. That clouds its future for long-term investors since it might not have much upside if it ultimately agrees to a deal at the offer price. Meanwhile, there's downside potential if it rejects that bid and doesn't receive a higher offer.

Uncertainty makes it an easy choice

Plymouth and Monmouth have steadily grown over the years, driven by rising demand for industrial real estate. While that tailwind should drive continued growth for both REITs in the future, it's unclear if public investors will benefit from that upside in Monmouth, given the potential of a sale. Because of that and its outsized exposure to one tenant, Plymouth looks like the better industrial REIT between these two for long-term investors these days.

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Matthew DiLallo owns shares of FedEx. The Motley Fool owns shares of and recommends FedEx. The Motley Fool has a disclosure policy.