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Industrial REITs: Don't Bite The Hand That Feeds You



  • Industrial REITs remain the unstoppable force in the real estate sector, delivering another stellar second quarter. Investors have systematically under-owned this sector, waiting for the pull-back that never came.
  • Industrial REITs are a case-study in why an investor’s time should be allocated to understanding supply and demand dynamics and long-term macroeconomic trends ahead of static valuation metrics.
  • Powered by the “need for speed”, fundamentals remain stellar. Market rents are poised to grow by roughly 6% in 2019 after rising 8% in 2018 and 9% in 2017.
  • What trade war? Industrial REITs have seen minimal impact from the elevating tensions between the US and China. Ironically the more worrying trends are related to a Retail Apocalypse 2.0.
  • A concern we raised last quarter, while the sector has benefited more than any from e-commerce, an intensification of retailer bankruptcies would concentrate more power in their largest tenant: Amazon.
  • This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »

REIT Rankings: Industrial

In our REIT Rankings series, we introduce and update readers each of the residential and commercial real estate sectors. We focus on sector-level fundamentals, analyzing supply and demand conditions and macroeconomic factors driving underlying performance. We update these reports quarterly with a breakdown and analysis of the most recent earnings results.

industrial REITs 2019Industrial REIT Sector Overview

Within the Hoya Capital Industrial REIT Index, we track the thirteen largest industrial REITs, which account for roughly $105 billion in market value: Prologis (PLD), Duke Realty (DRE), Liberty Property (LPT), Americold (COLD), First Industrial (FR), PS Business Parks (PSB), EastGroup (EGP), Rexford ( REXR), STAG Industrial (STAG), Terreno (TRNO), Monmouth (MNR), Industrial Logistics (ILPT), and Innovative Industrials (IIPR). Industrial REITs comprise roughly 10% of the broad-based Real Estate ETFs (VNQ and IYR).

reits industrial 2019

Investors looking to invest in the sector through a pure-play ETF can do so through the Pacer Benchmark Industrial REIT ETF (INDS). Once thought to be a "boring" real estate sector destined for chronic underperformance, industrial real estate has been on fire for the last half-decade. Demand for industrial space has been relentless, primarily driven by the rapid growth of e-commerce and the "need for speed" in goods distribution. Amazon’s push to two-day and same-day delivery has sparked a supply chain “arms race” among retailers and logistics providers of all sizes where it’s all about supply chain densification. Consumers and businesses alike are demanding ever-shortening delivery windows, necessitating the densification of supply chain networks and the establishment of distribution hubs closer to end-consumers.

industrial REITs 101

Industrial real estate assets have become far more consumer-oriented over the past decade. Once reliant on growth in the manufacturing and industrial sectors of the economy, the logistics-oriented nature of the highest-value industrial assets has made the sector less exposed to international trade and the risks associated

Announcement: Hoya Capital Teams Up With iREIT

Hoya Capital is excited to announce that we’ve teamed up with iREIT to cultivate the premier institutional-quality real estate research service on Seeking Alpha!

While we'll continue providing our free sector reports, iREIT subscribers will now get exclusive access to our expanded real estate coverage including:

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  • Real-Time Economic Analysis & Commentary
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This article was written by

Hoya Capital profile picture

Alex Pettee is President and Director of Research and ETFs at Hoya Capital. Hoya manages institutional and individual portfolios of publicly traded real estate securities.

Alex leads the investing group Hoya Capital Income Builder. The service features a team of analysts focusing on real income-producing asset classes that offer the opportunity for reliable income, diversification, and inflation hedging. Learn More.

Analyst’s Disclosure: I am/we are long PLD, VNQ, AMZN, W, WMT, TGT, HD, COST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. All commentary published by Hoya Capital Real Estate is available free of charge and is for informational purposes only and is not intended as investment advice. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy. Hoya Capital Real Estate advises an ETF. Real Estate and Housing Index definitions are available at HoyaCapital.com.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (38)

EliasMouawad profile picture
Another sign that the world has changed: PLD surpasses SPG in market cap...
Thank You!
I hope you will add LXP soon.
Hoya Capital profile picture
Thanks, LXP is kind of a "tweener" between a few different sectors so it never slotted in nicely into the sector reports, but we'll try to find a place for it either in the industrial or net lease sector reports.
jack kreg profile picture
You have great knowledge the industrial sector, I hold STAG.
I missed recent pull back to add to current position, purchased a few years back at $25.
The recent bottom was low 28's. Patience to get the right price for new shares!
thanks. always looking to add to current positions at the right price.
Hoya Capital profile picture
Thanks, @jack kreg. Glad you enjoyed!
Hey thanks for your thorough review of these REITS. I know it will be good. I actually print them off and read them, making notes. I wonder in the near future if you could look at and provide your analysis/review on the REIT (CMCT). This company recently issued a $14.00 special dividend, then did a 3 into 1 reverse split, then the share price readjusted down by slightly more than 2/3rds. +/-, making the whole special distribution a complete wash. Very unnerving to say the least, especially since the fundamental earnings of the company did not significantly change over a week.
Hoya Capital profile picture
Interesting, thanks I will look into adding CMCT into our office REIT sector report. Typically we don't cover stocks under $500m in market cap, but when there's reader demand, we will add to the coverage.
Preserve & Prosper profile picture
Nice article, but I find it hard to bite into this sector now due to sky-high valuations. Most of the industrial REITs in your charts are selling at or very near the top of their 52-week range, with many selling at price/cash flow multiples in the mid 20's or even 35X cash flow. Not that long ago -- like 2014 -- these stocks traded at much lower cash flow multiples. Many industrial REITs are selling well above Morningstar "Fair Value" levels.

In addition, current yields are so low -- most under 2.75%.

I owned STAG for a long time but sold it when I thought it had become overvalued. Some industrial REITs offer a decent growth path, but I'm not comfortable with the risk/reward ratio at current valuations.
A Pragmatic Investor profile picture
Then you might want to look at some of the smaller and/or
newer plays; Like Plymouth Ind. (PLYM).

It has done good by me thus far.
Hoya Capital profile picture
We're adding PLYM to the next update.
Long IIPR. Is it the youngest company?
Hoya Capital profile picture
Plymouth Industrial (PLYM) is newer, having launched in 2017.
Vandooman profile picture
Excellent article. Not sure why we should be concerned about Amazon if it is only 2% of revenues, unless Amazon decides to compete across the board in logistics.

In regard to data centers, these are very specialized buildings so the strength of the lease and lessor would be critical. The enormous heat given off by a data center has to be dealt with, along with security concerns and access to power. They use huge amounts of power. Data centers also have to be strategically located along the fiber networks. These requirements all create barriers to entry. Not a business for the uninitiated.
Hoya Capital profile picture
Thanks for the very good insights, @Vandooman. The Amazon is more of a long-term than near-term threat as we do indeed see them pushing more into the logistics business and competing more directly with the 3PL providers.

Brad Kenagy profile picture
ILPT actually has the largest exposure to Amazon, which I covered in my article on ILPT back in April. As of the end of Q1, Amazon represented 14.7% of rental revenues for ILPT.


Hoya Capital profile picture
Thanks, Brad. Good stuff. The end-exposure to Amazon is hard to pin down, however, as many of the third-party logistics firms are so heavily-reliant on Amazon.
Brad Kenagy profile picture
I forgot to add: I'm long ILPT
smurf profile picture
Whew! Comprehensive look into this sector.

I look forward to Hoya Cap articles. The analysis is thorough and so well written it’s like reading a book that flows naturally from chapter to chapter.
Hoya Capital profile picture
I appreciate that, glad you enjoy! @Moneybuck
WSLegend profile picture
Plym (Plymouth) is a smaller industrial reit that has a significantly higher yield and should be considered by investors!
Hoya Capital profile picture
I will include in the next analysis. At <$200m in market cap, it's below our normal coverage but will include due to reader demand.
A Pragmatic Investor profile picture
Looking forward to your analysis on PLYM.
have had for a year now, and very satisfied.
Shane Fernandez profile picture
Hi great article. Any thoughts on Canadian Industrial Reits? Specifically Summit Industrial and Dream Industrial?
Hoya Capital profile picture
Thanks Shane. Sorry, we don't have any insights into the Canadian industrial real estate markets.
Jimmy_Newyork profile picture
$STAG I'm all thumbs on the phone
Jimmy_Newyork profile picture
Well done! I enjoyed the perspectives. Thank you for the exceptional article. Still long on $STG - Have a great day, Jimmy
Hoya Capital profile picture
Thanks, Jimmy.
birder profile picture
The yields on these are somewhat skimpy. I have owned STAG for a while and have considered MNR. Still considering it. The others no. Oct is just around the corner. A very bad month for returns.
Hoya Capital profile picture
There's clearly been a sector rotation/rebalance out of the high-flyers into the "value" sectors over the last two weeks. Malls have had their best two weeks in quite some time. We don't think investors should read too much into it at this point.
Nothing is wrong with STAG and the almost 5% yield -
AvgWeirdo profile picture

I have to agree, if REIT's are supposed to distribute 90% of their taxable income why aren't they all yielding above 5%?
scoots profile picture
As usual, amazingly great article. All one needs to know about industrial REITs in a single article.

Many thanks !!
Hoya Capital profile picture
Glad you enjoyed, @scoots!
TryingToFigureItOut profile picture
Great article, thank you for writing such a detailed analysis.
Hoya Capital profile picture
Thanks! Appreciate the comment!
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