Industrial real estate is in high demand these days. Catalysts such as the accelerated adoption of e-commerce, supply chain issues, reshoring, and changing inventory management practices have businesses scrambling to lock up warehouses and other industrial spaces. That's driving up occupancy levels and rental rates for industrial properties.
These strong market conditions are benefiting real estate investment trusts (REITs) focused on owning industrial real estate. According to the National Association of REITs, the average industrial REIT will grow its funds from operations (FFO) per share by more than 10% over the next year. Because of these strong market conditions, investors are willing to pay a premium for industrial REITs. The average one trades at more than 26 times its 2022 FFO estimate. Some industrial REITs fetch even higher values.
However, several REITs trade at relatively cheaper prices. Here's a look at three value-priced REITs focused on owning industrial real estate.
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Too cheap given its growth prospects
Plymouth Industrial REIT ( PLYM -0.69% ) focuses on owning single- and multi-tenant industrial properties, including distribution centers, warehouses, light industrial, and small bay industrial properties. Demand for this real estate is strong. Last year, the company signed more than 5 million square feet of leases at an average rate of 11.1% above prior leases. That should help drive nearly 7% core FFO per share growth at the midpoint of its guidance range. That forecast also assumes the company will close the $197 million of acquisitions it has already identified.
Despite that healthy growth rate, Plymouth Industrial trades at about 14 times its 2022 core FFO estimate. That's cheap compared to its peers, especially considering its 2022 forecast seems light given its current acquisition pace. The company purchased $194.5 million of properties in the fourth quarter alone and had another $197 million in deals in the pipeline that should close by the second quarter. This purchase rate suggests it could deliver core FFO per share growth above its current forecast.
One positive of Plymouth's cheap price is that the REIT offers an attractive dividend yield. It's currently at 3.4% after increasing its dividend by 4.8% earlier this year.
A cheap price makes Stag a great passive income stock
Stag Industrial ( STAG -1.14% ) owns a diversified portfolio of industrial properties. That includes warehouses to support e-commerce and light manufacturing facilities. Demand for both types of properties has been strong in the past year. Stag reported that leases commencing in the fourth quarter were up double digits from prior rates.
Meanwhile, Stag is finding plenty of acquisition opportunities to drive further growth. The industrial REIT expects to buy between $1 billion and $1.2 billion of properties this year. That's an acceleration from its average acquisition volume of less than $800 million over the last seven years.
Stag's accelerating acquisition volume and strong rent growth should drive more than 6% FFO per share growth this year. Despite that healthy growth rate, Stag trades at an attractive valuation of less than 17 times its 2022 FFO estimate. Because of that cheaper price, the company's monthly dividend yields 3.6%.
An emerging player in the industrial sector
W.P. Carey ( WPC 1.06% ) technically falls into the diversified REIT category. It owns operationally critical real estate in the industrial, warehouse, office, retail, and self-storage sectors.
However, half of W.P. Carey's portfolio is industrial real estate, split relatively evenly between warehouses and industrial facilities. The company has significantly expanded its industrial real estate portfolio in recent years. In 2021, W.P. Carey invested a record $1.73 billion, 70% of which was industrial real estate.
This year, W.P. Carey expects to acquire between $1.5 billion and $2 billion of properties and will likely continue emphasizing industrial properties. When combined with rising rental rates, the REIT sees its adjusted FFO growing at a mid-single-digit rate in 2022. That has the REIT trading at about 15.5 times its 2022 FFO estimate, which is cheap for a diversified REIT (the sector's average is 17.5), especially given its industrial focus. W.P. Carey therefore offers a higher dividend yield, currently around 5.2%.
Great REITs for value seekers
Demand for industrial real estate is stronger than ever these days, which means occupancy and rental rates are rising. That's benefiting REITs focused on the sector. While these strong market conditions have investors bidding up industrial REITs, several still trade at attractive valuations, led by Plymouth, Stag, and W.P. Carey. That makes them great buys for investors seeking a good value in this red-hot sector.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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April 17, 2022 at 09:30PM
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These 3 Stocks Are Exceptional Value Buys Right Now - The Motley Fool
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