Industrial real estate investment trusts (REITs) have performed well over the past five years as increased demand for warehouses, manufacturing facilities and other logistics properties have propelled earnings for this sector.
But interest rate hikes and recessionary fears have put a damper on the 2022 performance of many industrial REITs, with prices down 30% or more over the past 52 weeks.
Take a look at a comparison of two of the best industrial REITs, both having excellent long-term track records. Still, one is clearly better than the other:
Prologis Inc. PLD is a San Francisco-based industrial REIT that owns and manages 4,914 industrial logistics properties from New York to California and in 18 other countries. Its market capitalization is $104.88 billion.
Rexford Industrial Realty Inc. REXR is a Los Angeles-based industrial REIT with 346 properties it owns or manages, all of which are in Southern California’s high-growth areas. Its market capitalization is $10.63 billion.
Size and Diversity
Prologis has a much larger market cap, 14 times more properties across the U.S. and a diversity of international properties. Rexford Industrial Realty is much smaller and far less diversified. Prologis is clearly better in this category.
Performance Over Time
Both REITs have performed well. In long-term performance since 2013, Prologis has a total return of 228%. Over the same time frame, Rexford Industrial Realty is up 334%. Over the past 52 weeks, both stocks are down just under 30%. Rexford Industrial Realty is the easy winner of this category.
Dividend Yield
Prologis pays an annual dividend of $3.16, for a present yield of 2.78%, while Rexford Industrial Realty pays an annual dividend of $1.26 for a present yield of 2.31%. While neither company has a very high yield, Prologis has the better yield of the two.
Dividend Growth and Stability
Over the past five years, Prologis grew its quarterly dividend from $0.48 to $0.79, an increase of 64%. During that same time, Rexford Industrial Realty hiked its dividend from $0.145 to $0.315, an increase of 117%. Neither REIT has cut its dividend over the past five years. Score this category for Rexford Industrial Realty.
Dividend Coverage by FFO
Prologis has forward funds from operations (FFO) of $5.12 and an annual dividend of $3.16, for an FFO payout ratio of 61.7%. Rexford Industrial Realty has forward FFO of $1.95 and pays a $1.26 annual dividend, for an FFO payout ratio of 64.6%. It’s close, but Prologis’ slightly lower FFO payout ratio wins this category.
FFO Multiple (Price/FFO)
Prologis has an FFO multiple (P/FFO) of 22.17, while Rexford Industrial Realty has a FFO multiple (P/FFO) of 28.02. The lower multiple gives the edge in this category again to Prologis.
Debt Ratio
Prologis has total debt of $18.67 billion, and its ratio of debt/equity is 47.13. Rexford Industrial Realty has total debt of $1.95 billion and its debt/equity ratio is 29.72. Owning far more properties will naturally give Prologis a higher debt amount, but the significantly lower debt ratio means Rexford Industrial Realty is carrying a safer debt load so it wins this category.
Most Recent Operating Results
Prologis had revenue of $1.75 billion, up 48.3% from $118 billion in the third quarter of 2021. Core FFO per diluted share in the third quarter of 2022 was $1.73, compared to $1.04 in the third quarter of 2021, an increase of 66%. Rexford Industrial Realty had revenue of $162.75, an increase of 41% from $115.40 in the third quarter of 2021. Core FFO per diluted share of $0.50 was an increase of 16.3% over the FFO of $0.47 from the third quarter of 2021.
While both companies had very good third-quarter results, Prologis’s results were better, particularly on its FFO. Prologis wins this category.
Summary
Prologis holds the advantage in the categories of size/diversity, dividend yield, dividend coverage by FFO, FFO multiple and most recent operating results.
Rexford Industrial Realty has the edge in performance over time, dividend growth/stability and debt ratio.
Prologis wins five categories to only three by Rexford Industrial Realty.
These two industrial REITs are both high quality, but the overall better stock to buy, based on the preceding eight categories, is Prologis.
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