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How Capital Deployment Strategies Helped Boost Industrial REIT Sales in 2Q17

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Aug. 25 2017, Published 11:19 a.m. ET

Why investment matters?

Industrial REITs (real estate investment trusts) tend to carry on many development and redevelopment projects at the same time in order to maintain their leadership in the industry. Such companies also tend to reposition their properties in high-demand commercial centers that are in close proximity to industrial developments and have high-income growth potential.

Proximity to commercial centers ensures consistent demand for the logistic warehouses, while job growth in the US and close proximity to Class A cities that have high job growth ensures high demand for office spaces offered by industrial REITs.

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Prologis’s profitability through acquisition

Prologis (PLD) has acquired 100% interest in its Brazilian subsidiary, Prologis CCP, for ~$362 million. The deal has helped PLD bolster its presence in the Latin American region. Apart from rationalizing its stake in NAIF (North American Industrial Fund), PLD also acquired properties worth $37 million in 2Q17 and undertook development stabilizations worth $560 million. Prologis also completed 20 build-to-suit development projects worth $430 million in 2Q17.

Duke Realty’s strategic investments

Duke Realty (DRE) embarked on a $154 million worth project of developments in 2Q17, and it ended the quarter with a development project pipeline of 10.9 million square feet. Notably, DRE has made use of the proceeds of the sales of its medical offices to fund this development pipeline.

DRE also acquired three properties worth $150 million in California and New Jersey in 2Q17. Takeovers worth $500 million in California, New Jersey, and Florida are expected to close by end of 2017, and DRE’s management remains confident that the strategic high barrier to entry markets where these properties are located will ensure prospects for future rent growth.

Duke Realty also disposed of non-core business properties in 2Q17, including several medical office buildings to investors like Healthcare Trust of America (HTA), which rents medical facilities. This has helped the company streamline its portfolio and focus on its profit-generating core businesses.

DCT Industrial Trust

DCT Industrial (DCT) took over one building worth $11.1 million spanning 73,000 square feet in California in 2Q17. DCT also initiated construction on a development project worth $56.8 million spanning 684,000 square feet.

DCT also stabilized 370,000 square feet of development and completed development projects of facilities spanning 720,000 square feet.

DCT expects to continue its development and expansion drive throughout the year. It has increased and narrowed its outlook on development starts to the range of $275 million–$350 million, changing its acquisition guidance to $50 million–$100 million. DCT expects to continue to streamline its properties and has raised its disposition guidance to $150 million–$200 million.

Investors looking for exposure to REITs can also opt for ETFs like the SPDR Dow Jones REIT ETF (RWR), which has 16% exposure to PLD, DRE, DCT, and Simon Property Group (SPG). RWR has net assets of $3 billion.

In the next part, we’ll examine how these REITs have been managing their expenses and income.

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