"Consumer behavior is evolving faster than supply chains can adapt." -- Chris Caton, Vice President, Prologis,
Many investors may not realize that there is a direct link between soaring e-commerce growth and swelling industrial space demand for REITs like: logistics giant Prologis, (NYSE: PLD ) , FedEx landlord Monmouth Equity Realty Investment Corp. (NYSE: MNR ) , and SoCal focused Rexford Industrial Realty (NYSE: REXR ) .
Prologis report highlights
A July 2014 Prologis report shed new light on how the logistics for e-commerce companies differs from traditional brick and mortar retailers. Here are some takeaways:
- E-commerce is a sizable and growing share of demand, currently representing 10% of all new tenants around the world, up from less than 5% just three years ago.
- For every billion in sales, traditional bricks and mortar retailers require 2.5 million square feet of retail space, and ~300,000 square feet of logistics space.
- In contrast, E-commerce retailers require 1 million square feet of fulfillment space, or ~3x the space of traditional bricks and mortar.
- Access for employees in the U.S. and Europe requires additional land for parking; while in Asia, proximity to mass transit is essential.
- Larger customers often require higher clear ceiling heights for mezzanine floor space and operations.
Have these industrial REIT stocks been on fire recently?
It does not appear that these three industrial REITs are in any way overheated when compared to the Vanguard REIT Index ETF, or VNQ. The VNQ is a good approximation for overall REIT sector performance.
However, when it comes to dividend yield these three REITs are outperforming the VNQ average.
The Prologis business model
Headquartered in San Francisco, Prologis operates ~574 million square feet of modern distribution facilities in 21 countries. That equates to having over 13,000 acres of single-story buildings under roof!
Prologis has 4,700 distribution/warehouse customers including: manufacturers, retailers, transportation companies, and third-party logistics providers. These facilities are clustered around major ports, railways, and regional transportation hubs.
Prologis is poised for growth
A land bank to develop 179 million buildable square feet, which represents $10.7 billion of estimated build out.
- Ability to increase AUM, or assets under management by $10 billion with minimal incremental overhead.
- Forecast 20% to 25% market rent growth from 2014 to 2017.
- Expects 4.7% same store NOI, driving annual Core FFO growth of 9.5%.
Clearly, Prologis is well positioned to capture its share of the global e-commerce bonanza.
The Monmouth business model
Last year marked the 46th year of Monmouth, or MREIC, as a publicly traded REIT. Founded in 1968, this industrial REIT has historically taken a very slow and steady approach to growth. After all of this time Monmouth's portfolio consists of a total of 80 industrial facilities containing approximately 10.5 million square feet of space.
In the early 1990's Monmouth began a relationship with Federal Express, now known as FedEx. In recent years, MREIC and FedEx have continued to expand their relationship, jointly taking advantage of the growth in e-commerce.
This is reflected in the current concentration of ~50% of the entire Monmouth portfolio being leased to either: FedEx, FedEx Ground, or FedEx Supply Chain. This concentration is either the great news, or the bad news, depending upon your point of view.
The balance of the Monmouth portfolio is leased primarily to investment grade companies such as: