Making money is essential to growing a successful business. And the more money a company makes, the more it can expand and grow -- and also make money for its investors over time.
The two real estate investment trusts (REITs) below are practically money-making machines. Tremendous expansion and consistent year-over-year growth have made Prologis (PLD 0.17%) and Public Storage (PSA -1.33%) two solid investments for creating reliable income streams.
Here's a closer look at the companies and why they should be on your investment radar.
1. Unmatched industrial portfolio
Prologis is the second-largest REIT by market capitalization, having interest and ownership in nearly 1 billion square feet of warehouses, distribution centers, and logistics facilities in 19 countries across the globe. A portfolio of this size would be explanation enough for its impressive earnings, but the company also benefits from being the dominant operator in one of the hottest real estate industries right now.
Industrial real estate is battling a record low supply. High barriers to entry for new developments and high demand are pushing rents sky-high on existing inventory. In the first quarter of 2022, Prologis saw a 37% gain in net effective rent, with around 75% of its tenants renewing their leases. It's also at a historic high for occupancy levels at 97.4%. This robust demand is expected to continue, putting Prologis in a fantastic position for continued growth.
Prologis' net operating income (NOI) has grown just under 5% annually over the past three years. At the same time, its funds from operations (FFO) per share, a key metric used to show the profitability of a REIT, has grown 58% over the past three years. Another testament to its financial strength is its free cash flow, which as of 2022 was $1.7 billion after dividends.
Expansion is what helps the cogs of the money-making machine turn. Over the last 20 years, the company has invested over $38 billion in new acquisitions and developments. Most recently, it announced its plan to acquire the smaller industrial REIT Duke Realty for $25.8 billion. And it's done this without taking on too much debt. Right now, it has $6.8 billion of cash on hand while maintaining a low debt-to-EBITDA ratio of 3.9.
The company's dividend -- presently 2.4% -- isn't as high as what some other REITs offer. But then again, those other REITs aren't achieving the same level of growth or making nearly as much money as Prologis. The quality of its portfolio and financial standing truly can't be beaten.
2. Dominating the self-storage business
Public Storage is the largest self-storage operator, with interest or ownership in 2,800 facilities totaling 200 million square feet of leasable space across 39 states in the U.S. It is among the top 10 largest REITs by market cap.
The company, like Prologis, is a money-making machine. In 2021, it earned $3.4 billion in revenue and $2.3 billion in free cash flow. Its strong revenue, low debt-to-EBITDA ratio of four, and ample liquidity have helped fund its expansion. Since 2019, the company has spent $7.4 billion in acquisitions adding over 38 million square feet and expanding its portfolio by nearly a quarter.
After the company's record expenditure of $5 billion in 2021, investors might wonder how much more room there is for the company to grow. But given the fragmentation of the storage industry, where most existing facilities are owned by mom-and-pop operators, the opportunity for expansion is high. Demand is also strong for this asset class right now. Occupancy rates have ticked up since the start of the pandemic, and rental rates have climbed steadily.
Public Storage's dividend yield isn't huge, at 2.6%, but it's over 1% higher than the S&P 500's yield right now. Plus, it's maintained its dividend payouts at $2.00 per share since 2017. And its low payout ratio and strong financial position make it a likely candidate for a dividend increase in the future.
