Green acres, grocery stores, and the American REIT

One of my favorite television shows growing up was called Green Acres.

Some of you are automatically hearing its theme song playing in your mind. (“Green Acres is the place to be. Farm living is the life for me…”) Others have no idea what I’m talking about.

If you’re too young to know of it, that’s okay. It was just a sitcom about Oliver Wendell Douglas, a New York City attorney who leaves the urban jungle to pursue his real dream of owning a farm in rural America.

Most viewers watched it for the obvious comedy – or the equally obvious beauty of Eva Gabor, who played Oliver’s beleaguered wife. (“Darling, I love you but give me Park Avenue.”) As for me though?

I was fascinated by the notion of owning productive land.

Today, as an adult, that fascination is now backed by a whole range of profitable facts and figures. As entertaining as it was to watch two city folk bumble their way around the countryside, I now know that working a farm isn’t just a lifestyle.

It’s one of the most important jobs on the planet considering how food is such an absolute human – and animal – necessity. And the more humans – and animals – there are, the more of it we need.

Yet even as the global population increases every year, the amount of productive farmland remains limited. If anything, it’s decreasing as agricultural land is sold and housing developments, warehouses, data centers, and solar projects pop up in their place.

This creates an intriguing opportunity for real estate investment trust (REIT) investors, since a few of these companies focus almost exclusively on renting out land to farmers.

Though that’s hardly where the REIT “food chain” ends. These landlords participate in nearly every stage of the process, as I’ll show below.

Let's follow the food! I think you’ll see it can be a profitable journey when you do.

As already noted (and as you already know), it all begins with farmland.

Unlike office buildings, shopping malls, or even apartment communities, productive farmland rarely becomes obsolete. In fact, the kind of advances we’re making these days in technology and irrigation can actually make it more productive over time.

So it makes sense that REITs might want to get in on that action, generating returns through a combination of rental income and land appreciation.

These landlords also benefit from relatively low volatility and even lower correlation with traditional asset classes. Plus, inflationary periods can actually make them more profitable as food costs and land values both increase.

Still, the farmland REIT pool is surprisingly small, consisting of just two companies:

That’s it. That’s the full spread of farmland REITs.

I wrote a more thorough evaluation of these two companies a few months ago that still largely applies today. Since I detailed why I prefer FPI over LAND, I’d suggest investors read that piece first if they want to know more about this particular REIT category.

When it comes to feeding America, growing food is only the beginning. Fruits, vegetables, dairy, meats…

It’s almost never directly sold by farms. Instead, farmers sell their basic products to companies that mix, mash, and package them accordingly.

Much of the resulting food consumed in the U.S. must then be refrigerated or frozen before it reaches grocery stores. So while the books, bedding, and decor you purchase from Amazon sit in standard warehouses before they reach your doorstep…

Your ground beef, raspberries, and yogurt require temperature-controlled buildings known as cold-storage facilities.

Cold-storage properties are among the most specialized industrial real estate assets you can find. They require extensive insulation and sophisticated refrigeration systems, plus backup power infrastructure and significant capital investment.

That means they’re not easily built or run, which creates high barriers to entry that make new supply less likely. So landlords that own them tend to make money.

That’s why I’ve long been interested in Americold Realty Trust (COLD). As the world’s largest publicly traded cold-storage REIT, it provides shelf space to food producers, distributors, and retailers to help preserve inventory and reduce spoilage between shipments.

There’s also Lineage, Inc. (LINE), which went public only two years ago. Exactly like Americold, it owns mission-critical facilities that come complete with high switching costs and therefore very sticky customer loyalty.

These are hardly perfect investments, mind you. And their stocks can suffer setbacks as much as any other company.

But they’re an intriguing part of the food supply chain nonetheless that I think is worth considering.

The final stop food makes before it hits your home is the grocery store. And grocery stores – even with their notoriously low profit margins – can be exceptionally resilient tenants.

That only makes sense considering how important they are to any community, serving a fundamental need. Consumers can postpone buying furniture, new TVs, or luxury goods if need be.

But they always need food to survive. There’s no putting off those purchases, a fact that not only benefits grocery stores but also the retailers around them… and their collective landlords like Regency Centers (REG).

Regency owns one of the nation’s highest-quality grocery-anchored retail portfolios. It focuses on affluent trade areas and signs on affluent market-leading grocery operators.

Kimco Realty (KIM), for its part, is the largest of the publicly traded shopping center REITs in the U.S. It owns hundreds of open-air centers, many of them anchored by leading grocers.

And the Sunbelt-exposed Brixmor Property Group (BRX) is also worth mentioning. Its strong presence in Southern states makes it another attractive shopping center landlord to look into.

These REITs know how to hold tenants that have the goods people really need. In return, they get consistent and growing returns that investors want.

SpaceX (SPCX) is still all over the news, making headlines and causing commentary left and right.

But over here at The Wide Moat Show, we’ve got other companies we want to talk about – like the seven “boring” bargain stocks Nick Ward and I covered in last week’s episode.

They’re primed to yield very nice results, as you can see for yourself when you catch the full episode right here.