Dual shockwaves from growing geopolitical tensions and the pandemic are causing companies to rethink their global supply chains. Many companies are reshoring manufacturing, reversing decades of globalization. In addition to deglobalization, companies are diversifying their global supplier base, reducing their reliance on China.
This shift is driving investment opportunities to build and expand supply chain infrastructure. That will benefit companies focused on this space.
The supply chain infrastructure opportunity
Leading global infrastructure operator Brookfield Infrastructure (BIPC +0.00%)(BIP +2.34%) detailed the supply chain infrastructure opportunity in its first-quarter letter to investors. Brookfield's CEO Sam Pollock wrote:
We anticipate that global supply chains will continue to evolve, as manufacturers diversify their sourcing beyond China using a "China +1" strategy. We expect that raw materials, goods and manufacturing inputs will increasingly come from multiple jurisdictions to improve the resilience of the network and to create resistance to supply shocks. Furthermore, there is a well documented growing preference for "just in case" inventory management, over the "just in time" strategy that has prevailed in recent decades. In prioritizing supply chain resilience, companies are increasingly recognizing the opportunity cost of missing manufacturing inputs, and the resulting unfulfilled market demand, is greater than maintaining extra inventory on hand.
Brookfield's CEO believes these trends will "create new and exciting investment opportunities within" its transportation logistics segment. That recently led the company to agree to acquire Triton International (TRTN +0.00%), a leading global owner and lessor of shipping containers. The deal will make Brookfield one of the most integrated providers of freight transportation services worldwide, complementing its global portfolio of ports and rail assets.
NYSE: BIP
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The transaction should also supply the company with stable and growing cash flows. That will give the company the money to sustain and grow its dividend. Brookfield Infrastructure currently offers a 4.2%-yielding payout that it expects to grow by 5% to 9% per year.
Building a buffer in the supply chain
The supply chain resiliency trend also drives demand for logistics real estate because companies need additional space to store raw materials and finished products. That's proving to be a boon for industrial REITs that own logistics properties like warehouses.
Leading industrial REIT Prologis (PLD +1.99%) is experiencing low vacancy rates across its global portfolio. With limited available space and restricted new supply coming online, the company expects rents to continue growing at a healthy pace across its global portfolio. It sees rents growing by 9% globally this year, even with its expectation of a moderate recession.
NYSE: PLD
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Meanwhile, Prologis has an enormous land base, giving it space to continue expanding. These factors drive the company's view that its income will grow at around a double-digit rate in the coming years. That should support continued growth in the company's dividend. Prologis has grown the 2.8%-yielding payout at a 12% compound annual rate over the last five years, double the pace of the S&P 500.
This trend also benefits fellow logistics-focused infrastructure REITs Rexford Industrial Realty (REXR +1.91%) and Terreno Realty (TRNO +1.68%). Whereas Prologis has a global focus, Rexford and Terreno concentrate on top U.S. coastal markets.
NYSE: REXR
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Rexford solely owns properties in the extremely tight Southern California market. Occupancy across its portfolio was 98% during the first quarter. Meanwhile, rents on properties with expiring leases grew a scorching 80.2% during the first quarter. Overall, cash net operating income across its same-store portfolio rose by 10.7%. The company is also spending heavily to acquire additional warehouse properties. These catalysts are helping drive robust dividend growth. Rexford has increased its 2.8%-yielding payout by a 19% compound annual rate over the last five years.
Meanwhile, Terreno focuses on six leading U.S. coastal markets. It's also seeing strong occupancy (98.1% across its portfolio) and healthy earnings growth (11% year-over-year in the first quarter). These drivers are allowing the REIT to continue growing its 2.6-yielding dividend. Terreno has increased its payout at a 12.2% compound annual rate since initiating it in 2011.
A long-term demand driver
Shifting global supply chains will drive demand for new infrastructure, including warehouse space. This emerging trend should benefit infrastructure operators like Brookfield Infrastructure and warehouse owners such as Prologis, Rexford, and Terreno. It should enable these companies to increase their earnings and expand their dividends. That makes them compelling long-term investment options for investors seeking the potential to earn market-beating total returns.
