The combined ports of Los Angeles/Long Beach are the ninth busiest worldwide, and industrial REITs such as: global player Prologis, (PLD 1.70%), U.S. focused DCT Industrial Trust, (DCT), and U.S. coastal city niche player Terreno Realty Corporation (TRNO 0.99%) are all competing for their piece of the distribution/warehouse pie.
An August, 2013 Wall Street Journal article described the industrial gold-rush in the Southern California Inland Empire as being "at the mercy of trends in global trade beyond its control."
A REIT with a different business model
In stark contrast, Monmouth Equity Realty Investment Corp. (MNR), does not have a single facility anywhere near these two California ports. That is because Monmouth is betting half of its chips on the growth of e-commerce proxy FedEx.
Monmouth does not compete in the industrial markets adjacent to ports located in the San Francisco bay area, Seattle, Miami, or near the ports of Baltimore/Washington, D.C. and New Jersey/New York City either. These five coastal markets are where Terreno Realty has the rest of its pins in the map. Terreno is effectively betting the majority of its chips on the health of U.S. imports and exports.
Tale of the tape
The chart below serves to contrast the recent performance of $587 million market cap Monmouth with $622 market cap Terreno, and two much larger peers:
Simple is as simple does
Monmouth is an easy REIT for investors to understand:
- No development, growth is by acquisitions.
- No off-balance sheet joint ventures.
- No significant holdings of non-income producing land.
However, one unusual wrinkle is that Monmouth does hold a ~$50 million portfolio of marketable securities, or investments in other publicly traded REITs.
E-Commerce as a tailwind
Traditionally, Monmouth was an old school, slow growing, conservatively managed REIT. Recently, Monmouth has started to grow at a far faster pace, by hitching its growth star onto e-commerce logistics giant FedEx.
This has been a major component driving Monmouth's ~50% growth over the past three years. During 2013, Monmouth acquired 1.1 million square feet of single-tenant industrial properties -- increasing its gross leasable area by 13% and revenues by 8%. Predictably, FedEx business units were a major factor.
Terreno Realty gets an "A" for transparency
Terreno is a small cap industrial REIT with a laser focus on six major U.S. coastal markets.
In the future Terreno could opt to expand its geographic focus to take advantage of more opportunities, similar to the Monmouth and STAG Industrial business models. This would help Terreno to leverage existing customer relationships -- perhaps by acquiring build-to-suits from a third-party developer to lease back to high credit tenants.
The Terreno Realty management team deserves an award for transparency, as the CEO and President's long-term incentive plan is clearly aligned with shareholder interests. Definitely a company you may want to put on your watch list.
DCT Industrial is poised to grow profitably
DCT Industrial is the largest industrial REIT focused solely on N. America. It has a portfolio of over 400 modern industrial facilities, containing ~73 million SF in 21 targeted markets. In a recent June, 2014 NAREIT Investor Forum, CEO Phil Harris commented on the "heavy lifting" being over regarding the repositioning of the DCT portfolio of assets.
CEO Harris feels that DCT Industrial has a competitive advantage from having "talent on the ground" in the core regional markets targeted for growth by either development or acquisition.
A key takeaway for investors interested in DCT Industrial, is that the company is now committed to a continuous process of portfolio evaluation on an asset by asset basis, with an eye toward recycling the bottom 5% as higher yielding opportunities arise.
Prologis is industrial strength
If you believe in the long-term prospects for: Europe, Asia, S. America and the Middle East, $21 billion industry giant Prologis, is clearly positioned to take advantage of global economic growth. Prologis has a major U.S. presence as well.
In addition to operating a ~574 million square foot portfolio throughout 21 countries, Prologis owns another ~10,000 acres of land, capable of supporting an additional 180 million SF of buildings.
DCT Industrial and Prologis have geographically diverse portfolios which helps them to hedge their bets by participating in both global trade and e-commerce growth. Terreno Realty with its concentrated focus on six U.S. coastal markets remains heavily dependent on U.S. imports and exports for growth.
Although Monmouth has not raised its dividend since 2006, Mr. Market appears to feel that its exposure to e-commerce from its profitable relationship with FedEx will help to grow FFO and dividends for shareholders moving forward. I think that is a good bet.