Global economic conditions have not been so stable in last couple of years. In the present scenario, the US economy is showing signs of recovery, but the market is still not supportive of high investment in bonds. This is mainly because the Fed is focusing on keeping the interest rates low. Under these circumstances, REITs are proving to be the next best alternative for investors looking for high yields and risk adjusted growth.
Prologis Inc (NYSE:PLD), Digital Realty Trust, Inc. (NYSE:DLR) and DCT Industrial Trust Inc. (NYSE:DCT) are some of the most promising industrial REITs operating in the US market.
Prologis owns development projects in 21 countries across geographies like America, Europe and Asia. It is working in developing projects totaling 565 million square feet. With its diverse portfolio and global investments, it continues to develop industrial REITs as strong investment alternatives. Its stock offers a dividend yield of 2.9%. Prologis stood out among its competitors by providing 25% appreciation to its investors in 2012. It is the largest industrial REIT and has a market cap of $16 billion. The company’s share price has increased by 44% since its IPO in 2010.
This stock is worth considering and is expected to yield high returns on investment.
Investor Favorite
Digital Realty is a top pick of investors these days given its better than expected performance last quarter and high dividend growth. The dividend has increased 10 times since 2004 and is maintaining a current annual yield of 4%. Its high growth is being driven by high revenues and funds from operations. Digital Realty is one of the top performing industrial REITs, and it has an equity market capitalization of $8.1 billion. It is a must buy stock considering both short and long term investment perspectives.
Losing on the Growth Front
DCT Trust recently reported significant expansion and progress in the Houston market. The company has announced several new projects, including an industrial center, that have been marked for completion in the year 2013. This reflects the high demand and pressure from the market for new industrial properties. Rising investments are supporting the company in completing these projects on an early basis.
DCT has been facing losses since 2009 as its operating costs are increasing and it is earning flat revenues year after year. It is also experiencing losses because of the high charges associated with real estate depreciation and amortization.
Although the company is expanding, it is losing growth both on revenue and profit fronts. Investors are losing confidence in the company. This stock is a clear no-buy in the near future. Long term investments can be considered in the company as it is expected to be able to bring down losses once the world economy becomes more stable.
Growth Driving Factors
The Fed is planning to keep interest rates low till the following two objectives are achieved:
1). Unemployment rate of 6.5%
2). Inflation of 2.5%
Interest rates are expected to be low at least for a year. This is creating a perfect growth opportunity for bond-like equities, which can give higher yields at low risk, as investments like 10 year Treasuries are offering rates as low as 1.88%.
The performance of industrial REITs is improving slowly in the US market, and slow and steady growth is expected for 2013 as well. Growing credit trends, a shortage of new property and high retention rates are strongly supporting this sector. A majority of Industrial REITs in Europe have large portfolios with exceptional assets and acceptable debt levels. More stabilized economic conditions will ensure a positive trend in the growth of industrial REITs.
Conclusion
Industrial REITs have seen a strong growth during 2012. This sector is expected to grow further in the coming years. It is slowly developing as an investment alternative for less risky securities like bonds. Investors are refraining from investing in bonds because of their very low interest rates. On the other hand, industrial REITs are providing very good dividends and are comparatively less risky than other investment alternatives.
The success of companies like Prologis, Digital Realty and DCT Trust is attracting new market players. The sector is expanding and promises stable growth patterns in the times to come. The US industrial property market is strengthening, and industrial absorption rates have been positive for more than a year now. As GDP is expected to return to more stable levels, investments in real estate supported by long term industrial leases can deliver high risk adjusted returns.
The article 3 Interesting Industrial REIT Players for 2013 originally appeared on Fool.com and is written by Sujata Dutta.
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