Perhaps no company in the world has changed the way consumers shop or companies do business than Amazon.com, Inc. (NASDAQ:AMZN) in recent years. The rise of e-commerce has changed the landscape forever, and with much of the commentary on such changes often taking the negative perspective, I’d like to highlight one sector that has huge potential to ride this wave into the future: industrial real estate investment trusts (REITs).
The REIT sector has been punished by a rising interest rate environment of late. Investors have looked past real estate largely due to the fact that these equities act in a similar way to bonds — a rising risk-free rate reduces the value such firms can provide investors over the long term.
That being said, yield is only one component of REITs — the real estate that underpins the trust is, in many ways, more important that the yield itself. Investors will want to know how risky the lease contracts that REITs hold are.
Two industrial REITs I have highlighted in the past as companies with substantial upside are Dream Industrial Real Estate Invest Trst (TSX:DIR.UN) and WPT Industrial Real Estate Investment (TSX:WIR.UN). These two trusts offer investors exposure to assets that are becoming scarce due in part to gentrification and the growth of residential real estate in areas that were previously zoned for industrial real estate, and the rise in need for industrial real estate to support the needs of distribution and logistics companies attempting to meet the needs of the e-commerce revolution underway.
According to a recent report released by Colliers International Group Inc., industrial real estate is now more sought after than office space in 14 key North American markets. This trend is unlikely to abate in the long term, as valuable pieces of land that are strategically located are likely to produce much higher returns over time than what the market is pricing in.
On a fundamental basis, both of these REITs are trading right around book value, with Dream slightly more attractively valued. The dividend-payout ratios of both companies remain relatively low for the REIT sector, providing room for dividend growth — factors that continue to make these two REITs very attractive, in my eyes.
Picking sectors that are expected to outperform over the long run is, in many ways, more important that picking winners within a sector. I would recommend long-term investors consider Dream and WPT first if real estate is under-represented in a given portfolio.
Stay Foolish, my friends.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Chris MacDonald has no position in any stocks mentioned in this article. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon. WPT is a recommendation of Dividend Investor Canada.