ILPT Stock: How to Collect a 7% Yield From Procter & Gamble Co
June 24, 2019
Quarterly Rent Checks From Procter & Gamble Co, Amazon & More
This type of investment property represents one of the best income opportunities in real estate: warehouses.
As commercial properties go, warehouses have none of the sex appeal of skyscrapers or shopping malls. But due to high yields, low maintenance costs, and long lease contracts, these buildings turn out to be pretty solid investments.
In more recent years, the e-commerce boom has turned this industry into a cash machine. To accommodate the shift to online shopping, companies need huge logical warehouses near urban centers. That has pushed up rents for existing properties, making landlords a fortune.
One way to get in on the boom is Industrial Logistics Properties Trust (NASDAQ:ILPT). The partnership owns 277 buildings totaling some 33.2-million square feet of rentable space. The trust allows investors to collect ongoing rental income from top companies like Amazon.com, Inc. (NASDAQ:AMZN), FedEx Corporation (NYSE:FDX), and Procter & Gamble Co (NYSE:PG). (Source: “About Us,” Industrial Logistics Properties Trust, last accessed June 21, 2019.)
You can see the success of this business in Industrial Logistics’ financial results. Last quarter, the partnership saw rental income jump 11% year-over-year to $46.0 million. Net operating income, a measure of how much cash is available for distributions, increased 14% from the same period in 2018. (Source: “Industrial Logistics Properties Trust – Events and Presentations“, Industrial Logistics Properties Trust, last accessed June 21, 2019.)
This performance will likely continue. In a recent conference call with analysts, the company boosted its earnings and cash flow guidance for the upcoming year. Executives credited this bullish outlook to higher rents at existing properties, as well as the purchase of new buildings.
For unitholders, this success has already translated into a tidy income stream. After going public in 2018, management began paying a quarterly distribution of $0.33 per unit. That comes out to an annual yield of nearly seven percent. (Source: “Industrial Logistics Properties Trust — Distributions,” Industrial Logistics Properties Trust, last accessed June 21, 2019.)
Industrial Logistics Properties Trust’s Top 5 Tenants
|
Tenant |
Sq. Feet (000s) |
% of Rental Income |
| Amazon.com, Inc. |
6,119 |
14.7% |
| Procter & Gamble Co |
1,791 |
4.2% |
| FedEx Corporation |
899 |
3.4% |
| Restoration Hardware Holdings, Inc |
1,195 |
2.6% |
| American Tire Distributors, Inc. |
722 |
2.1% |
Source: Industrial Logistics Properties Trust, op. cit.
The Bottom Line on ILPT Stock
As always, Industrial Logistics Properties Trust is no sure thing. Commercial properties like warehouses are more cyclical than other real estate investments like apartment buildings. If a big tenant like Procter & Gamble Co runs into financial trouble, it could take a bite out of cash flow.
That said, Industrial Logistics Properties Trust has accounted for these potential issues. Executives have done of good job diversifying its tenant base, which should ensure a steady stream of cash flow. And by maintaining a modest debt load and payout ratio, management has left themselves some financial wiggle room to survive the next recession.
Income hunters should give ILPT stock a second look.
