Our rankings for the US REITs highlight a stock that is in the bottom positions of the industrial sector–Monmouth Real Estate—which invests in single-tenant, net-leased industrial properties on long term leases. Although it has distributed the same or increased dividends for 23 years and has a yield of 6.5 percent, Monmouth has not shown the great performance that Terreno Realty and First Industrial have. If we focus almost exclusively in operational metrics, our rankings show that having a good track record doesn’t necessarily translate into growing dividends.
In October, things improved slightly, when after a ten-year hiatus, Monmouth finally increased its quarterly dividend from $0.15 to $0.16, a 7 percent bump; even with that, though, we haven’t changed our minds about them. The company still makes distributions that are higher than its available funds from operations and seems used to that situation. Even through periods of recession, and despite a poor FFO performance, the company kept making steady distributions.
A characteristic specific to Monmouth is its tenant concentration. Investment-grade tenants have provided 85% of its rental revenue and over half of that comes from a sole tenant–FedEx Corporation. The relationship with FedEx dates back decades and as the company loves to say “time opens doors”. In fact, the company was founded in 1968 and is one of the oldest REITs around.
As Monmouth loads up its acquisition pipeline with more FedEx deals, President and CEO Michael Landy says:
“Years ago the question was a concern about our FedEx concentration and the predilection on Wall Street to be more diversified. And some people would have preferred us to have a retail portfolio secured by a diverse array of tenants such as Kmart and Sears and Radio Shack and Borders and Circuit City. And the fact is, those companies are all gone and those goods are still being consumed and those goods are all in our FedEx warehouses.”
Industrial REITs have benefitted from e-Commerce, which has fueled the need for warehouses. The CEO continues,
“So I think diversification can be a terrible mistake. If you find a really strong company like FedEx, and we’ve been with FedEx since 1992, it really makes sense to increase your exposure. And what we’re seeing today, back in 1992 online shopping didn’t exist.”
We couldn’t disagree more.
Another specific characteristic of Monmouth is its relationship with UMH Properties—a related REIT with which they share executives. They also share similar architectural aspects in their investor relations websites. UMH, a publicly-traded REIT, invests in manufactured home communities. Fifty-three percent of its acreage is concentrated on the Marcellus and Utica Shale Regions, whose boom “ran out of gas”.
In summary, despite the track record and signs of growth, concentration has put us off.
Source: Monmouth Real Estate Investment Corporation (NYSE:MNR), UMH Properties (NYSE:UMH), Seeking Alpha
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