Investing in Industrial REITs | The Motley Fool

Industrial Real Estate Investment Trusts (REITs) own real estate that is important to industry. Manufacturing and logistics companies are increasingly finding that they do not need their own real estate. This opens the door for industrial REITs to own more properties and drive their growth.

Here’s a closer look at the industrial REIT sector, its benefits, risks, and some industrial REITs worth considering.

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Understand industrial REITs

Industrial companies Use many different types of Property To develop, manufacture or produce goods and products. You also need specialized logistics real estate to support the transportation and storage of products and goods. Properties in the industry include:

• Light production facilities.
• Food production facilities.
• Temperature-controlled warehouses (e.g. cold stores).
• Cultivation facilities and other properties for cannabis for medicinal purposes.
• Flex / office space, ie a combination of office and industrial space such as a warehouse or light manufacturing.
• Logistics real estate such as warehouses and fulfillment centers.

Industry REITs rent these properties to tenants with long-term contracts, some with a term of 25 years. They often rent an entire industrial building to a tenant under a triple net leasing structure, with the tenant responsible for building insurance, property tax and maintenance coverage. These agreements provide the REIT with a steady cash flow.

Benefits of investing in industrial REITs

Industrial REITs are benefiting from several major demand drivers that have accelerated during the COVID-19 pandemic. Increasing online sales increase the need for more storage space. Meanwhile, problems in the supply chain are leading many industrial companies to rent more warehouse space to store additional inventory. Many companies are also bringing manufacturing back to the US due to supply chain issues and other factors. This tailwind of demand is driving up occupancy and rental rates and offers industrial REITs significant development opportunities.

Industrial REITs also tend to generate more consistent cash flow than other REITs. Its focus on long-term triple net leases makes the industry relative recession-resistant and keeps running costs low compared to other types of commercial property.

Risks of investing in industrial REITs

While the industrial real estate industry will have to build significant capacity in the coming years to meet growing demand, there is a risk of overbuilding in the sector. Most industrial REITs develop new real estate speculatively or without attracting a tenant before construction begins. They believe they will sign a lease before it is completed. However, if too many REITs build up too much speculative capacity in certain markets, this can lead to falling occupancy rates and rental prices.

In addition, industrial REITs are exposed to two common risks to all REITs: interest rate and financing risks. Rising interest rates can drive up a REIT’s interest expense if it has floating rate debt or significant upcoming maturities.

Higher interest rates can also make it difficult for a REIT to fund its operations. If interest rates rise too sharply, it can become too expensive for a REIT to finance expansions such as acquisitions and development projects.

At the same time, rising interest rates can also weigh on REIT shares. Rising interest rates increase the return on income for lower-risk options such as bind. As a result, the Dividend yield REITs need to rise (which happens when their stock prices fall) to compensate investors for their higher levels of risk.

5 Industrial REITs to Consider in 2022

According to the National Association of Real Estate Investment Trusts (NAREIT), there were 15 listed REITs as of the end of 2021. Here are some interesting ones for investors:

Industrial REIT	Ticker symbol	Market capitalization	Company description
Prologis	(NYSE: PLD)	$ 119.5 billion	A leading global provider of logistics real estate.
American Realty Trust	(NYSE: COLD)	$ 8.4 billion	The only pure REIT for cold stores.
STAG industry	(NYSE: HIRSCH)	$ 7.9 billion	A diversified industrial REIT.
Innovative industrial real estate	(NYSE: IIPR)	$ 5.6 billion	An industrial REIT focused on medical cannabis real estate.
PS business parks	(NYSE: PSB)	$ 4.7 billion	An industrial REIT with a focus on business parks.

Data source: company websites and YCharts. Market capitalization Data from December 15, 2021.

Prologis

Prologis is by far the largest industrial REIT and the second largest REIT overall. At the end of 2021, the company had investments in nearly 4,700 buildings, covering nearly 1 billion square feet, that were rented to approximately 5,500 tenants. The company has a global logistics business with offices in 19 countries.

The company’s global reach sets it apart from most other logistics-focused industrial REITs, which typically emphasize that the U.S. Prologis also has an investment management platform that enables it to earn management fees in addition to rental income. It also has a development platform that improves its growth prospects. These differentiating factors have enabled Prologis to grow faster than other logistics REITs over the years.

American Realty Trust

Americold Realty is the first publicly traded REIT to focus on cold store properties. At the end of 2021, the company owned and operated 248 temperature-controlled warehouses with more than 1.5 billion cubic feet of storage capacity worldwide. Americold rents space in its facilities to food manufacturers, wholesalers and retailers.

The company earns most of its money in its warehouses. It also manages external facilities and offers transport services. Americold was a serial acquirer that enabled it to build the world’s second largest portfolio of temperature controlled bearings.

STAG industry

STAG Industrial has a diversified portfolio of industrial properties. It had more than 500 buildings, covering more than 100 million square feet, as of the end of 2021. These properties include warehouses, lightweight manufacturing facilities, and flexible office space. It rents its buildings to individual tenants under triple net leasing agreements. STAG is also highly diversified in terms of tenant, market and industry.

In addition to diversification, STAG differs from other REITs in two factors. First, it is one of the few REITs that a monthly dividend. It now has no development platform. Instead, the REIT is growing primarily through the acquisition of additional properties.

Innovative industrial real estate

Innovative Industrial Properties focuses on owning specialized industrial properties that are rented to government-licensed cannabis operators. The company owned more than 100 properties, spanning 7.7 million square feet in 19 states, as of the end of 2021.

Innovative Industrial Properties helps raise capital for the Cannabis sector. It enters into sale-leaseback transactions to acquire pharmacies, grow facilities, processing plants, manufacturing facilities and other real estate that it leases back to regulated operators. This gives her the capital to continue expanding her activities.

PS business parks

PS Business Parks owned 97 properties, spanning more than 28 million square feet, in a dozen of the major U.S. markets as of the end of 2021. These properties mainly consist of multi-tenant industrial, flex and office space in business parks. It rented space to more than 5,000 tenants and focused on giving smaller businesses the space they need to grow.

PS Business Parks is expanding through the acquisition of industrial buildings. It will develop them opportunistically on non-income generating land within its existing business parks. It has also started development of apartment buildings in one of its business parks and is building 800 apartments or is under construction.

Many different industrial REIT options

Commercial real estate covers a large area. For this reason, many industrial REITs focus on a particular type of property. This offers investors a wide range of opportunities to invest in the sector.