I recently wrote an article for Sure Dividend entitled “Consider Equity REITs for Your Next Investment“. In that article, I listed nine equity REITs (eREITs) for dividend investors to consider in light of the drubbing that eREIT valuations have recently taken due to fear of rising interest rates and to capitalize on the pass-through provision for REIT income included in the new tax legislation. Both of these topics are covered in some detail in the previous article. This article provides a more complete investment thesis for STAG Industrial (STAG), one of the nine eREITs highlighted in the previous article.
STAG Industrial, Inc.
STAG Industrial invests in single tenant warehouses, distribution centers, and light industrial buildings in secondary markets around the country. STAG Industrial has an enterprise value of roughly $4.1 billion owning 356 buildings in 37 states in the US. STAG Industrial was established as a public company in July 2010 and is headquartered in Boston, MA.
Readers interested in the difference between primary and secondary industrial building markets should understand that primary markets (cities) are those with total industrial real estate space greater than 200 million square feet while secondary markets typically include total industrial real estate space of 25M – 200 million square feet. In short, primary markets are larger while secondary markets are smaller.
STAG Industrial sees advantages to investing in the secondary market with few disadvantages. The secondary market is significantly smaller but tends to offer lower acquisition costs.
The secondary market occupancy and rent growth track closely together with the primary markets. The charts below show that relationship.
Source: STAG website
With the cost advantages that the secondary market buildings have with essentially the same occupancy and rent growth as in primary markets, STAG management believes they are in a sweet spot with respect to industrial real estate.
