The meteoric growth of e-commerce in recent years has accelerated further during the pandemic, adding fuel to the fire for distributors of all kinds who need to tie up the logistics space they can use to storage and shipping.
This set the stage for a serious rally in real estate investment trusts (REITs) specializing in these properties. Nareit, a leading REIT researcher, lists 13 industrial REITs and claims that they generated an average total return of 47.11% in 2021. This was followed by an average decline of 14.32% until now this year.
But this recent drop offers the opportunity to acquire shares at relatively low prices. Some of the best industrial REITs you can buy right now include Prologis (PLD -1.62% ), Rexford Industrial Building (REXR -1.45% )and Duke Real Estate (DRE -1.78% ).
Prologis is one of the largest REITs in any sector, with approximately 4,700 properties in 19 countries. This San Francisco-based powerhouse is attracting attention not just for its size, but also for its thought leadership.
For example, when Chairman and CEO Hamid Moghadam recently said that “the space in our markets is indeed running out,” that quote became the go-to mantra for the state of the warehouse market around the world.
His business also has 181 million square feet it can build on to add to the roughly billion it currently owns, so despite its size, there’s still room for this critical space provider to many shippers from foreground in the world.
Prologis stock trades at around $164 per share, good for a market capitalization of around $119 billion, and yields around 1.97% after increasing its dividend by around 49% over the past three years.
Duke Real Estate
Duke Realty is the second-largest industrial REIT, with approximately 545 properties in 19 markets across the country. It’s good for about 160 million square feet, and its biggest customers, in order, are Amazon, Home deposit, Wayfairand UPS.
It’s a who’s who of major shippers, and there’s also a healthy mix of manufacturers and carriers that will also help ensure the profitability and growth of this 50-year-old operation.
Expansion is underway, for example, in hot market San Jose, where the company just got approval for a 303,000 square foot building and is looking to do the same for a similarly sized building.
These and other projects on the drawing boards in this market are not entirely new projects. The company’s ability to undertake difficult constructions that involve, for example in San Jose, the reorganization of the site of a former foundry, testifies to its ability to find opportunities where others could not venture.
Duke Realty shares trade at around $58.69 per share, which corresponds to a market capitalization of around $22 billion, and is earning around 1.94% after increasing its dividend by around 30% over the course of the year. of the last three years.
Rexford Industrial Building
Rexford Industrial is even more concentrated, with a portfolio of 308 properties that it defines as “100% infill Southern California.” This 37 million square feet is 99.7% occupied and, like other industrial REITs, its clients are willing and able to pay rising rents and sign long-term leases.
Rexford’s focus on this market may make it a particularly attractive investment among logistics stocks. The company points out that it operates exclusively in areas where the average rent is more than 80% higher than the average of the next five highest US markets.
Rexford shares trade at around $75 per share, which corresponds to a market capitalization of around $12 billion, and is earning around 1.7% after increasing its dividend by around 70% in the last three years.
Now let’s look at some graphical illustrations of the performance and potential of these three stocks. We will include Vanguard Real Estate ETF ( VNQ -1.22% )also, to provide a benchmark comparison from this index fund of approximately 180 REITs.
First, here’s the three-year growth in total return for Prologis, Rexford Industrial, Duke Realty and Vanguard Real Estate ETF, dating back to the year before the global coronavirus pandemic. Total return takes into account both dividend payouts and share price appreciation, and this chart illustrates how strong and geographically broad the recovery has been in the industrial real estate sector.
Next, this graph shows year-to-date stock price performance for Prologis, Rexford Industrial, Duke Realty, and Vanguard Real Estate ETF. They all participated in the overall market slump as 2022 unfolded and all showed some recovery. Still, these dips are excellent buying opportunities. Interestingly, Duke is still the most down, but it shares the same fundamentals – intense demand for its space, premium customers who can pay rising rents, and money to spend on expansion – like the others, and they’re all right to rally in the future, especially in the long run.
Now, this graph shows the three-year growth in funds from operations (FFO) for Prologis, Rexford Industrial Realty and Duke Realty. FFO is considered one of the most important metrics for evaluating equity REITs, and its growth is seen as a sign that management is effectively using its assets to grow bottom line, which in the case of a REIT, should indicate an increase in dividends and stock prices.
Finally, this chart shows the three-year growth in dividend payouts for Prologis, Rexford Industrial Realty, Duke Realty, and Vanguard Real Estate ETF. Dividends are particularly important for REIT investments, as these stocks are often viewed as both income stocks and growth stocks. Combine the growth we see here with the FFO performance in the chart above and you can see that these companies are using this positive cash flow to reward shareholders, and because of the momentum of the industry they’re in, there are good reasons to expect that to continue.
These three REITs should continue to rise with the tide
Each of these industrial REITs has a growing portfolio of high-demand, low-vacancy properties with long-term leases and rent increases. This bodes well for their future. With huge potential for expansion and a solid track record of dividend growth, these companies could be solid real estate investments for long-term investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.