# distribution warehousing REITs



## Tinman (Feb 17, 2014)

I think I'm *too in love* with distribution centre REITS. Want to make sure I'm not missing a downside. I invest in stocks like I'm 80 years old. Low risk, low volatility, growing demand, and not much in the way of disruptive technology that can come and wipe it out. 

The way I see it, Amazon will be putting lots of grocery stores out of business in the coming years because everything will be ordered online and promised in 24 hours. They need to keep this stuff in central locations though.

low overhead - just big spaces and shelves with very few human staff needed per square foot. Only need to run enough hydro to keep everything from freezing. Economic catastrophes aside, what am I not seeing as a risk in this space?


----------



## treva84 (Dec 9, 2014)

Tinman said:


> I think I'm *too in love* with distribution centre REITS. Want to make sure I'm not missing a downside. I invest in stocks like I'm 80 years old. Low risk, low volatility, growing demand, and not much in the way of disruptive technology that can come and wipe it out.
> 
> The way I see it, Amazon will be putting lots of grocery stores out of business in the coming years because everything will be ordered online and promised in 24 hours. They need to keep this stuff in central locations though.
> 
> low overhead - just big spaces and shelves with very few human staff needed per square foot. Only need to run enough hydro to keep everything from freezing. Economic catastrophes aside, what am I not seeing as a risk in this space?


What are the tickers you are looking it?

I am unfamiliar with this space but I'd be happy to take a look and weigh in. 

Generally though when something is a safe, sure thing, it's priced high. Also REITS in general carry a lot of debt - what are the balance sheets like? Is the debt maturity spread out? In a credit crunch are they likely to be re-financed?


----------



## andrewf (Mar 1, 2010)

I don't think it's the secret to riches. Specialized DCs (for instance, designed around particular automation solutions, temperature controlled, etc.) may have a higher risk of long-term vacancy. Also, large facilities built in saturated markets can be risky, too. Target Canada's warehouse in Cornwall, ON, sold for a fraction of what it was built for just a couple years earlier.

I'm also not sure Amazon is a dream tenant.


----------



## Beaver101 (Nov 14, 2011)

^ Amazon may not a dream tenant but I think Tinman is looking at supply and demand ... in the future or near future.


----------



## andrewf (Mar 1, 2010)

^ That's what I call 'story investing'. I think it's a recipe for failure.


----------



## Beaver101 (Nov 14, 2011)

^ When was supply and demand classified as "story investing"?


----------



## andrewf (Mar 1, 2010)

Imagine it is 1998 and we were all telling ourselves stories about how the internet was going to be huge and change everything (true). Does that mean that internet stocks were a good buy at the time?

Amazon is not going to move the needle on the industrial real estate market. You can't blindly buy an industrial real estate REIT just on the insight that Amazon will build a few more warehouses. That's like buying gold miners because India likes gold.


----------



## Beaver101 (Nov 14, 2011)

^ I don't think Amazon is the only type of business model that demands for industrial REITS ... there's manufacturing, storage, greenhouse veggies growing, marijuana producers, etc.


----------



## sags (May 15, 2010)

Having worked in a national auto parts warehouse for 30 years, I can think of a few problems that would impede automated warehouses.

The first is vendor packaging. If products are to be moved robotically, they have to have a standard shape and form. This would be near impossible with a wide breadth of products.

Second, automation doesn't run forever without constant maintenance. 

These automated warehouses would require a large number of skilled technicians who would higher wages than a warehouse worker, which negates the benefit of fewer employees.

How do you handle heavy products, long products, products with unbalanced weight, ...........and on and on.

Warehousing is constant change and sorting out of problems. Robots don't handle that kind of workplace very well.

What often happens with "automated warehouses" is there are separate contractors who handle and prepare the stock before it arrives at the warehouse.

They may unload the stock from trucks, trains or air igloos and put it into standardized containers for the robots to handle, as an example.

All in all, I wouldn't be confident "low overhead" costs will be easy for REITs to achieve or maintain.


----------



## james4beach (Nov 15, 2012)

Tinman said:


> I think I'm *too in love* with distribution centre REITS. Want to make sure I'm not missing a downside. I invest in stocks like I'm 80 years old. Low risk, low volatility, growing demand, and not much in the way of disruptive technology that can come and wipe it out.


It's hard to know without looking at a specific company, but REITs are generally leveraged entities (have debt). The real estate exposure + leverage is hardly "low risk, low volatility". But I'm generalizing here without knowing the company.

One quick test: how did these stock(s) perform during the 2007-2009 time frame? Worse-than-market performance strongly suggests that they are leveraged, and not particularly low risk.


----------



## Tinman (Feb 17, 2014)

thanks all for the comments. 2 specific ones I like are SMU.un and WIR.u Amazon was just a toss out example, so was automated.


----------



## mopar44o (Aug 11, 2017)

AAR is another I'm considering


----------



## Koogie (Dec 15, 2014)

sags said:


> Having worked in a national auto parts warehouse for 30 years, I can think of a few problems that would impede automated warehouses.
> The first is vendor packaging. If products are to be moved robotically, they have to have a standard shape and form. This would be near impossible with a wide breadth of products.
> Second, automation doesn't run forever without constant maintenance.
> These automated warehouses would require a large number of skilled technicians who would higher wages than a warehouse worker, which negates the benefit of fewer employees.
> ...


I would think that is a problem for the warehouse operators, not for the REITS that own the actual warehouses necessarily.


----------



## mopar44o (Aug 11, 2017)

https://www.dropbox.com/s/e7ocmouv8jjzezi/IndustrialREITS.xls?dl=0 My Spread sheet


So back on this topic. I've been looking at 3 different industrial reits and comparing them. I'm not expert on balance sheets so feel free to look at this and verify my numbers. AAR was the easiest to read as they clearly labeled FFO / AFFO while the other 2 didn't and I had to rely on investor presentations and other sources. If anything is glaring wrong please do point it out.

Despite its lower yield, and lowest (albeit small difference) occupancy rate, I like the fact that its got the lowest debt ratio, largest market cap of the 3, and its pricing to ffo & affo (if I did it right) is right in the middle of the 3. It also doesn't have a DRIP which I can't take part in because I'm investing in registered accounts, so for me generally its dilutive. I also like that it covers both Canada and the USA where the other two are either or.

I was kind of worried that it has a heavy presence in Ontario. But then I realized that the GTA (in particular Brampton) is the trucking hub of Canada so it makes sense to be heavy here. The biggest risk I can see is that FEDEX is such a big customer of their portfolio. Upwards of over 20%. But that also means its in good position for ecommerce. They also deal with other shipping companies like DHL and Canada post. I also like that Kellogg's is one of their biggest customers here in Brampton and its the distribution centre for all of Canada. So its likely safe. 

Their top 10 clients also have the longest lease average compared to the other two of 7.7 years. 

Anyone got anything they want to add / contribute / or additional insight?


----------



## john.cray (Dec 7, 2016)

mopar44o said:


> Anyone got anything they want to add / contribute / or additional insight?


FWIW. I have owned AAR.UN for the past 6 months and it has done good for me. Almost 11% total return. I think the summary you've provided above is great. One additional aspect that you might want to consider is that they say are also aiming at catering to pot producers as potential clients (storing product, not growing). This might be a roundabout way of playing the whole legalization aspect of it.

Anyway, I like that REIT.


----------

