NEW YORK, NY--(Marketwire - Feb 1, 2013) - The year gone by was somewhat of a mix between strong and lackluster performance for the U.S. Real Estate Investment Trust (REIT) industry. While the first six months of 2012 were pretty strong, the third quarter was not much to write back home about. The industry picked up again and recovered by year-end. Industrial REITs such as Prologis Inc. and DCT Industrial Trust Inc. however stood out by providing investors with 25% appreciation in 2012. YTD performance of these two REITs in 2013 has been equally good with both showing above 8% appreciation.
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The REIT market is a complex and uncertain market that presents opportunities for mergers and acquisitions. However, there has not been a major acquisition in the industrial REIT space since the 2011 merger of Prologis and AMB Property Corporation.
For the last 15-20 years, listed REITs have been able to standout and gain from a combination of factors, regular and healthy dividend payouts being the most noticed among them. The U.S. law mandates that REITs return 90% of their taxable income to shareholders in the form of dividend and as such, REITs have been a favorite for investors looking for a regular income. It is very likely that the trend will continue.
The real estate market is cyclical in nature and a major downside in real estate prices may affect REITs. However, industrial REITs whose source of earnings and funds is primarily from operations are less likely to be affected by the cyclical nature of real estate.
In an interview with REIT.com, Phil Hawkins, president and CEO of DCT, said that he was "cautiously optimistic about 2013."
A major concern is the trend of raising capital through equity offers and property level debt. While property level debt is a potential burden on an already leveraged balance sheet, equity offers work to dilute earnings. At the same time, raising capital is necessary for getting the much needed cash for boosting growth.
Prologis is a global REIT that acquires, develops, operates and manages industrial real estate. The trust provides industrial warehouse and distribution space in some of the busiest markets across North America, Europe and Asia. As part of its expansion plans, the trust is setting up a REIT in Japan.
In a panel discussion on sustainability, Walter Rakowich, CEO of Prologis Inc., said, "Sustainability is a part of everything we do. It's a mindset. There is no on or off switch." This mindset is reflected in the M&A activities of the trust. Its merger with a namesake company and subsequent acquisition of AMB resulted in operational synergies, which in turn provided cost savings and in the process created a launching pad for sustainable growth.
DCT owns, develops and operates bulk distribution and light industrial properties in the distribution markets in North America and Mexico. According to the CEO, Phil Hawkins, the biggest strong point of DCT "is the quality of DCT Industrial's assets," which has allowed the trust to benefit from increase in occupancies in markets where it operates, including South California, Houston, Seattle and Miami.
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Michael Thomas Smith