Miami, Florida – As online shopping continues to thrive and e-Commerce retail sales increase, Real Estate Investment Trusts (REITs) focusing on this sector show promising long-term growth potential. One notable REIT to monitor is STAG Industrial (NYSE: STAG), which is reaping the benefits of the e-Commerce boom. In addition to its e-Commerce real estate investments, STAG is expanding its portfolio through strategic acquisitions, resulting in growing Funds From Operations (FFO) and dividend payouts. The outlook for STAG appears to be optimistic in the long run as the REIT occupies a crucial and expanding niche in the market.

STAG is a REIT that specializes in single-tenant properties within the U.S. industrial market, boasting a portfolio of 570 buildings with an operating occupancy rate of 97.9% as of the end of the last quarter. With a majority of its properties located in CBRE Tier 1 markets, which are established and growing markets, STAG has been able to increase its rental rates above market averages in the past due to the attractive nature of Tier 1 cities for real estate development and leasing.

Demand for industrial facilities remains high, leading to robust growth in rents for STAG over the past few years. The REIT has witnessed significant market-beating rent growth, driven by the strong demand for industrial properties and resulting in favorable funds from operations growth.

Over the past decade, STAG’s FFO has surged due to its active acquisition strategy. The REIT’s FFO has grown by 388% in the last ten years, translating to nearly 50% growth on a per-share basis. This growth is directly correlated to the increasing demand for industrial real estate and the advantageous lease positions that landlords currently enjoy.

In the first quarter, STAG continued its positive momentum by generating $109 million in core funds from operations, reflecting a 7.3% year-over-year growth rate. The expectation is for STAG to further expand its portfolio through strategic acquisitions in the industrial market and drive FFO growth primarily through portfolio transactions.

The rise of e-Commerce sales, attributed to the widespread adoption of smartphones and companies investing in online storefronts, presents a promising long-term outlook. As retail e-Commerce sales show sustained growth, companies with exposure to the industry are poised to benefit from the expanding market. Despite a slowdown in growth rates post-pandemic, the e-Commerce market is projected to continue its expansion, with global e-Commerce sales forecasted to reach $8.0 trillion between FY 2023 and FY 2027, indicating an average annual growth rate of 9%.

STAG’s customer base, driven by e-Commerce retail sales, underscores the pivotal role the e-Commerce industry plays in the REIT’s operations. With the share of e-Commerce retail sales on the rise in both the U.S. and the UK, demand for e-Commerce-related facilities like distribution centers is expected to increase moving forward. Notably, Amazon stands as one of STAG’s largest tenants, accounting for approximately 2.9% of the REIT’s annual base rent.

Regarding valuation, STAG is positioned at an enterprise value-to-EBITDA ratio of 16.5X, the lowest among industry peers such as Americold Realty (COLD) and Terreno Realty (TRNO). Despite trading below the industry average, STAG is expected to drive FFO growth through acquisitions in FY 2024 and beyond. The concentration of STAG’s real estate assets in Tier 1 markets signals compelling long-term opportunities for rental rate increases above market averages, potentially leading to a revaluation of shares to meet industry benchmarks.

In consideration of risks, STAG is exposed to the volatility of the e-Commerce sector and consumer spending behavior. Any economic downturn or slowdown in e-Commerce growth could impact the REIT’s performance, particularly given its focus on industrial properties. However, STAG remains a promising pure-play REIT in the industrial market niche, offering attractive prospects for long-term rent, FFO, and dividend growth.

In conclusion, STAG’s strategic positioning within the growing e-Commerce industry coupled with its focus on Tier 1 markets presents compelling opportunities for investors seeking steady income from their investments. The REIT’s ability to raise rents above market rates in high-demand markets highlights its strong bargaining position and potential for long-term revaluation. With a monthly dividend yield of 4.2%, STAG remains an appealing investment choice for those eyeing consistent returns in the real estate sector.