Headline-grabbing news events often push investors into emotional investing decisions. That's exactly what is taking place today with regard to tariffs. The investor reaction to tariffs has pushed industry-leading industrial real estate investment trust (REIT) Prologis (PLD -1.16%) down 35% from its 2022 highs and led to an attractive yield of 3.7%. You can do even better, collecting a 4.7% yield, with this well-positioned industrial REIT that is down 55%. Here's what you need to know.
Why are investors downbeat on Prologis?
Prologis is an industrial REIT giant, with operations across North America, South America, Europe, and Asia. It owns 5,900 buildings containing 1.3 billion square feet of space. But the key part of the story is where its buildings are located.
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Prologis has assets in just about every major transportation hub in the world, serving 6,500 customers looking to import and export goods. This is a huge business strength, but right now it is seen as a huge negative. That's because U.S. tariffs have upended international trade norms. That's pushed Prologis' stock price down and its yield up.
This is definitely a short-term disruption, but it seems unlikely to become a permanent negative. The world is so interconnected today that the more likely outcome is that trade patterns shift and Prologis' diverse portfolio of assets is still highly valuable. Prologis is, indeed, an attractive dividend investment opportunity today. And yet there's an even more interesting story to be told with Rexford Industrial Realty (REXR -0.92%).
Highly focused Rexford is deeply out of favor
Like Prologis, Rexford owns industrial assets that are vital to international trade. The most important difference between the two REITs is that Rexford is focused on just one single market, Southern California. It owns 424 properties with 51 million square feet of space in them. The key here is that Southern California is the major gateway for Asian goods entering the U.S. market (and vice versa).
That, of course, is the problem, given the high-profile tariff fight between the United States and China. The near-term uncertainty has led investors to abandon Rexford. But, like Prologis, it seems more likely that international trade will adjust to a new normal than stop entirely. That alone makes Rexford's lofty 4.7% dividend yield attractive, but there's more.
Southern California is a supply-constrained market. That gives Rexford a strong negotiating position when signing leases. Rexford is also a skilled redeveloper, frequently buying older assets and upgrading them so that they are more modern and desirable. That also helps its ability to raise rents.
To be fair, the highly concentrated nature of Rexford's business does make it riskier than more diversified Prologis. But unless you believe international trade is going to stop, Rexford should come out the other side of the current uncertainty in a strong position.
The opportunity to buy Rexford Industrial is in the here and now
Oftentimes the best opportunities to buy a well-run company arise when Wall Street is overly pessimistic. The key is to figure out if the worry is about something that will linger or something that is likely to be temporary. The upheaval in international trade seems like a temporary issue, given how interconnected the world is today. For more conservative investors that could make Prologis an attractive option, while more aggressive investors will probably prefer higher-yielding Rexford industrial. And if you do buy one of these high-yield industrial REITs you'll probably end up owning it for the long term.
