Positions I’m Watching: Industrial REITs
By: Stacey Nickens
Last week, Pfizer announced that their vaccine was 90% effective when tested on a small group of individuals. This news pushed the market away from growth equities towards value stocks. The move came as investors began to have hope that the pandemic’s hardest-hit industries, such as airlines and hospitality companies, would soon get some reprieve. This trend continued today following Moderna’s positive vaccine announcement. The pharmaceutical company reported that their own vaccine candidate was 94.5% effective when tested.
While growth stocks will likely remain attractive to investors, there is significant opportunity in the value space. Many value companies, especially those with smaller capitalizations, currently offer more bang for your buck compared to the lofty valuations of tech companies. Even still, I am hesitant to get involved in speculation around what industries will rebound from the pandemic and when. Instead, I began looking at the industrial real estate sector. Industrial real estate investment trusts (REITs) own and manage warehouses, and as demand for e-commerce and shipping expands, these warehouses remain in high demand. Below, I will review three different industrial REIT investment opportunities that you could keep on your watch list.
Americold Realty Trust (COLD)
Americold owns and operates temperature-controlled storage spaces, and they generate a majority of their revenue from their temperature-controlled warehouses. They are the only publicly-traded, United Stated-based REIT in the cold storage sector, making Americold a unique investment opportunity. The rise of e-commerce and online grocery ordering has increased the demand for these cold-storage facilities. Indeed, Americold was able to grow its revenue over the past quarter, even as the broader economy struggled to recover. Their 2020 third-quarter revenue was 12% higher compared to their 2019 Q3 revenue. Cold-storage space is often rented on an as-needed basis. As a result, Americold is able to adjust prices more quickly than other industrial real estate trusts. This flexibility introduces some risk into this investment opportunity, while also giving Americold the ability to adapt to changing market demands. Additionally, Americold has a current dividend yield of 2.25% and could be a strong add for income-oriented investors.
Duke Realty Corp (DRE)
Duke Realty has also seen a boom from e-commerce sales. Duke owns and operates a variety of industrial warehouses. These warehouses have become increasingly necessary as shopping moves online, and as a result, Duke Realty posted an impressive third quarter. Their core funds from operations (FFO) increased 8% compared to their 2019 third-quarter FFO. Additionally, their same-store net operating income increased 5% on a year-over-year basis. Even as other real estate trusts start to enter this lucrative space, Duke Realty often signs multi-year contracts. The length of these contracts gives them some lock on the expanding warehouse market. Also like Americold, Duke Realty presents an attractive dividend of 2.38%.
Prologis Inc (PLD)
Analysts recently raised their fair price estimate for Prologis as the industrial real estate industry has been performing better-than-expected. Analysts expected the recession to chip at industrial real estate gains; however, growth from e-commerce compensated for much of the recession’s impact on Prologis. Prologis stands to benefit from high warehouse occupancy rates coupled with rising rents. They rent out their facilities to many of the nation’s top retailers, and as e-commerce continues to become a rising force in the retail market, Prologis is set to capture some of that growth moving forward. With a 0.89 beta, Prologis may be attractive to more risk-averse investors. (A beta of less than 1 suggests that a company’s stock performs less volatilely than the broader market.) Additionally, Prologis has been increasing their dividends since 2013 and now offers an annual dividend of $2.32 per share. With a dividend yield of 2.23%, Prologis joins both Duke Realty and Americold in offering an income investing opportunity.
Sources: Morningstar, FactSet
Disclosures: Past performance is not a guarantee or a reliable indicator of future performance. All securities carry a unique set of risks subject to a variety of factors. There is no guarantee that these investment strategies will work under all market conditions or that they are are suitable for all investors. This material has been distributed solely for informational purposes and should not be considered as individual investment advice or recommendation. Individuals should consult their investment professional prior to making an investment decision.