Along with the boom in e-commerce sales, which has worked out quite well for industrial real estate investment trusts (REITs), the stars are also aligning for the REIT space in a few other key ways. As expectations for a September rate cut from the Federal Reserve linger near 100% amid cooling inflation, REITs stand to benefit from lower borrowing costs. Plus, traditionally high-yield REITs become more attractive to investors as bond yields decline.
With macro trends taking a shift for the better, and amid a market niche that is projected to grow by $333.01 billion through 2027, investing in high-quality REITs can be a smart choice for investors now. Here's one industrial REIT that pays a monthly dividend to investors - and could be set for double-digit upside, too, according to a recent bull note from analysts at Wedbush.
About Stag Industrial Stock
Founded in 2010 and based out of Boston, Stag Industrial (STAG) specializes in the acquisition and operation of single-tenant industrial properties throughout the United States. The company's portfolio primarily includes warehouse and distribution facilities, with a significant portion of the properties leased to investment-grade tenants on long-term leases.
With a market cap of $7.3 billion, shares of the REIT are up only about 1% on a YTD basis, and 3.2% over the past 52 weeks. That includes STAG's recent burst of momentum, up 16% from its early May lows.
Of course, REITs are popular with many investors for their steady stream of passive income, with requirements calling for 90% of net taxable income to be distributed to shareholders.
STAG offers a dividend yield of 3.67%, with distributions of $0.12 per share made on a monthly basis. The company has been raising dividends consistently for the past 11 years.
STAG's Solid Q1
Stag's numbers for the first quarter were impressive, as both revenue and earnings surpassed estimates. Core funds from operations (FFO) per share, a key metric for REITs, increased by 7.3% from the previous year to $0.59, outpacing the consensus estimate of $0.58. Revenues rose 8.1% year over year to $187.5 million, aided by growth in the core rental revenues.
Over the past 5 years, the company's FFO CAGR of 3.04% has edged out the sector median of 2.19%. Over the same period, Stag's revenues have clocked a CAGR of 14.71%, compared to the sector median of 5.62%.
Same-store cash NOI, an indicator of operational efficiency and organic growth for REITs, rose by 7.1% on a YoY basis to $139.1 million during Q1. Occupancy rate on the total portfolio stood at 97.7%, with a retention rate of 84.2%.
Additionally, the company closed the quarter with a cash balance of $69.96 million. Cash available for distribution was $98.1 million during the quarter, a growth rate of nearly 9% year over year - further bolstering the company's ability to keep raising dividends in the future.
Stag's Diversified & Expanding Portfolio
Digging deeper into the industrial REIT's portfolio, Stag owns 570 buildings across 41 states. A significant portion of its properties lie within a 60-mile radius of “Megasite” projects under the "Investing in America" initiative, and its tenant base includes major players like Amazon (AMZN) and FedEx (FDX).
In Q1, the company signed 29 leases and purchased a Class A warehouse in Cincinnati, Ohio, for $50.1 million. Additionally, Stag acquired three buildings totaling nearly 3 million square feet - two in South Carolina and one in Tampa - for $85 million.
With a strong focus on e-commerce, Stag boasts a weighted average lease term of 4.4 years. Roughly 75% of its portfolio resides in CBRE Tier 1 markets, known for their growth and attractiveness for real estate development and leasing. This focus has driven above-market rent growth for the REIT.
Analysts are optimistic about the company's growth prospects, forecasting forward FFO and revenue growth at 4.19% and 7.51%, respectively - ahead of the corresponding sector medians of 1.86% and 4.01%.
How High Can STAG Rise?
Overall, the analyst community have assigned STAG an average rating of “Moderate Buy.” Out of 12 analysts covering the stock, 4 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 6 have a “Hold” rating, and 1 has a “Moderate Sell.”
The mean price target for the shares is $39.77, which is roughly flat with STAG's current price. However, Wedbush believes the REIT can rise higher, lifted by sector rotation.
Recently, Wedbush analyst Richard Anderson upgraded Stag Industrial to “Outperform” from “Neutral,” citing expectations for "a sustained rotation back into" the industrial REIT sector. In fact, the analyst further suggested pairing STAG with fellow REIT Eastgroup Properties (EGP) for “a combination of momentum and value.”
STAG's newly raised price target at Wedbush is $44, indicating a premium of roughly 11% to Wednesday's close.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
