The rise of e-commerce is a trend that will stick around for the long haul. If you’re retired or are nearing retirement, then you’re probably attracted to the high-flying nature of e-commerce plays and the massive returns they’ve generated over the past few years. But if you’ve got a conservative long-term investment plan, then odds are, the speculative nature of certain high-flying e-commerce stocks are probably stopping you from loading up on shares today.
There’s no question that the e-commerce business model is going to grow by leaps and bounds over the next decade and beyond, but is there an investment that caters to the average income investor or retiree who may not want to take on an excessive amount of risk? Fortunately, there is!
Pure Industrial Real Estate Trust (TSX:AAR.UN), or PIRET, is the security you’re looking for! The trust owns and operates a diversified portfolio of industrial properties in leading markets across Canada and the U.S. One of PIRET’s long-term objectives is to grow over the long term by making accretive acquisitions of warehouse assets located in hot markets with the hopes of consolidating its fragmented industry.
Where does e-commerce fit in?
The rise of e-commerce has a huge impact on logistics real estate. The growth of e-commerce is outpacing retail sales growth, and the CBRE estimates that each $1 billion worth of e-commerce sales comes with 1.25 million square feet of logistics demand.
PIRET recognizes this opportunity, and it’s trying to capture as big a slice of the e-commerce pie as it can. Currently, e-commerce-related properties account for ~30% of PIRET’s portfolio. Going forward, it’s expected that e-commerce-related properties will continue to account for an even larger percentage of PIRET’s income stream.
Strong portfolio of long-term tenants
PIRET has a solid portfolio of tenants, which have an average lease of 6.2 years. What are some of PIRET’s tenants? They include FedEx Corporation, IKEA, Toys ‘R’ Us, just to name a few. FedEx is PIRET’s largest tenant, and it accounts for ~21% of PIRET’s revenue with a current weighted average lease term of ~8.8 years remaining. FedEx delivers a tonne of packages which were ordered online, and it needs a place to store these packages before they’re shipped to consumers. That’s where PIRET comes in!
What about valuation?
Industrial REITs are quickly becoming a way for investors to get a high yield to go with enormous capital gains. Since the start of 2016, PIRET has soared a whopping ~57% to go with a fat distribution; the yield is currently lower than normal at 4.71%.
Shares currently trade at a 6.4 price-to-earnings multiple, significantly lower than the company’s five-year historical average price-to-earnings multiple of 10.5. Although shares have soared of late, there’s still value to be had and plenty of upside for investors with a five-year time horizon or more.
Of all the Canadian REITs out there, AAR.UN is definitely one of the most exciting plays for long-term, income-focused investors.
Stay smart. Stay hungry. Stay Foolish.
