The supply chain is in a state of chaos today, and demand for warehouse space is high. Industrial real estate investment trusts (REITs) Prologis (PLD 0.64%) and First Industrial (FR 1.56%) both focus on this sector. There are some minor differences between the two companies, however, that might influence which one you'll like more if you are looking at the warehouse niche. Here's a quick overview of some of the most salient similarities and differences between them.
1. Similar but different focus
Both Prologis and First Industrial own warehouses located in key logistics hubs. They focus on helping move products around the world, getting items from where they are created to where they ultimately get used. Thus, on the surface, they do exactly the same thing. However, Prologis has a global footprint while First Industrial is only a domestic player. That probably gives Prologis an edge for those that like diversification, but it also adds some complication to the story. Operating in foreign countries means dealing with foreign laws and regulations, and most investors will be largely unaware of these things. First Industrial's U.S. footprint would be easier for investors to understand and track.
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2. Vastly different size
Prologis has a $115 billion market cap. First Industrial's market cap is just under $8 billion. Prologis is the warehouse industry's 800-pound gorilla, and First Industrial, despite a 25-year history as a public company, is, relatively speaking, a small fry.
As you might expect from the market cap figures, the portfolios of these two REITs are very different, too. Prologis owns more than 4,700 buildings with over 1 billion square feet of space. First Industrial's portfolio included around 420 properties containing about 62 million square feet of space.
Although these two warehouse landlords are direct competitors, they are leagues apart when it comes to scale. That suggests that First Industrial could be able to grow its business at a more rapid clip over time, given that it's working off of a smaller base.
3. Dividend growth
Over the past decade, that story has, in fact, played out. First Industrial's dividend has grown 217% since a dividend cut in 2014. Prologis' dividend has grown by 125%. Those are both really impressive numbers, considering that dividend stalwart Realty Income has only increased its dividend by 30% during that span. That said, shorten the time frame to five years and the positions here reverse, with Prologis' dividend growing 43% compared to First industrial's dividend gain of 28%. For reference, Realty Income's dividend only increased by 12% or so. That said, the last few years have been unusual in many ways and the bigger story is, perhaps, that both of these industrial REITs have rewarded investors with robust dividend growth.
4. Building from the ground up
Growth for both Prologis and First Industrial has historically come from a combination of acquisitions and ground-up construction. Acquisitions are hard to predict, but Prologis probably has the upper hand in the area given that it operates in more markets. As for construction, Prologis estimates that it has 181 million square feet of warehouse space that it can build out. First Industrial's pipeline is 16.3 million square feet. Neither is hurting for growth opportunities; however, it is important to remember that Prologis needs a lot more investment to move the needle on the top and bottom lines. So despite having a smaller development pipeline, First Industrial will probably benefit more from its construction plans.
5. Capital matters
With Prologis' larger size, it probably has easier access to equity capital than First Industrial, which gives it an edge on the growth front. It also has a slightly higher credit rating, though both are investment-grade rated companies. Add in Prologis' global portfolio and it can easily issue debt in markets outside the U.S., which presents more opportunities to lock in the best interest rates. The bigger company gets the edge here.
Valuation
Summing this all up, the stories here are very similar. If you prefer diversification, Prologis will likely be the best option. If you'd prefer to own a smaller company that may have more growth opportunities longer term, First Industrial will be a better fit. And First Industrial's U.S. focus will probably also appeal to investors looking for simple businesses.
That said, both appear expensive right now, sporting historically low dividend yields. Prologis's yield is almost 1.7% and First Industrial's is slightly more than 1.8%, which gives the small fry a slight income edge, but not by much on an absolute basis. As such, value investors will probably want to steer clear of both names. However, if you believe that fixing the supply chain is going to allow these two REITs to keep growing at a breakneck pace, then either one will likely fit the bill. You'll just need to make sure that you take care to understand the subtle differences between them in order to pick the one that's right for your portfolio.
