Warehouse and other industrial space may just be big boxes of concrete and sheet metal but they've packed a profitable punch for many investors through the pandemic and now beyond.
Three players in this space worth particular consideration this month are Prologis (PLD -7.19%), Rexford Industrial Realty (REXR -5.42%), and Terreno Realty (TRNO -5.01%).
They're each attractively priced right now and stand to benefit from the ongoing growth in e-commerce leasing and supply chain restructuring inspired by pandemic-induced parts and product shortages.
Beating the market from niches of their own
Each of these REITs has its niche -- although Prologis' niche spans 19 countries -- and they share a history of nicely rewarding investors. As the chart below shows, since the Great Recession they've outpaced the benchmark Vanguard S&P 500 ETF in total return.
PLD Total Return Level data by YCharts
With a market cap of about $119 billion, Prologis is the largest of all REITs regardless of sector. It's so big, in fact, that an independent research firm just reported that nearly 3% of all goods produced and sold globally moved through its properties last year.
Rexford, meanwhile, claims to have an "irreplaceable portfolio in the nation's largest, most sought-after industrial property market." That portfolio currently comprises 357 buildings and 42.5 million rentable square feet in infill Southern California markets, the kind of places that the aforementioned Prologis report notes have particularly high barriers to development, thus limiting the ability for competitors to horn in.
Terreno is the smallest of the three, with 15.4 million square feet in 252 buildings and 46 improved land parcels. This REIT -- founded by former Prologis executives -- has a very tight focus on hard-to-match infill sites, mostly small warehouses and mixed-use facilities near seaports, airports, and major interstates in and around Los Angeles, northern New Jersey/New York City, San Francisco, Seattle, Miami, and Washington, D.C.
PLD Dividend data by YCharts
Meeting their obligations as dividend machines
Like all REITs, Terreno, Prologis, and Rexford are obligated to pay out at least 90% of their taxable income as dividends, and they've done that well, as the chart above shows. Their sector as a whole is seeing high occupancy rates as well as the ability to leverage that demand into rising rental income, both in modest rent escalators in existing leases and sharply higher rents for new leases.
Such leases also tend to be for at least a few years or more, and their long list of tenants large and small provide diversity, and thus resilience, to their portfolios. And it's not always just warehouses. For instance, Rexford's rent roll is nearly equally split among manufacturing, warehousing/transportation, and wholesale trade.
All three are also trading at prices that are down 25% to 30% from their post-pandemic highs. That's a reflection of the impact of recession fears and of rising interest rates for REITs -- which, because they pay out so much in dividends, must depend so heavily on borrowing for new acquisitions that fuel accretive growth.
But these are resilient, well-managed operations in a sector that continues to see strong demand for its space, giving them the ability to continue building their records as reliable providers of passive income for years to come.
