However, while the sector as a whole is a bit pricey, as the above table shows, First Industrial, Duke Realty, and EastGroup Properties stand out within the subgroup of logistics-focused industrial REITs as trading at the cheapest valuation metrics.
On the one hand, there's some justification behind the higher valuations of Prologis and Rexford Industrial Realty. For starters, they have stronger balance sheets -- Prologis is one of the few REITs with A-rated credit. Meanwhile, Rexford has the lowest leverage ratio in this subgroup at 3.1 times debt-to-EBITDA.
However, that's not to say First Industrial, Duke Realty, and EastGroup Properties are weaker financially. All three have investment-grade credit ratings backed by solid leverage metrics. Duke's 4.7 times debt-to-EBITDA ratio is a tick better than Prologis' 4.8 times, while EastGroup and First Industrial aren't too far behind, at 5.1 times and 5.3 times, respectively.
Meanwhile, all five have been growing their same-property net operating income (NOI) at similar mid-single digit paces over the last two years. While Rexford has delivered the fastest growth at an average pace of 6.1%, the rest are bunched together in the 4.5% (EastGroup) to 4.9% (Duke) range.
Visible growth ahead
All five industrial REITs have lots of growth ahead. For most of them, the main growth driver is their development pipeline. Duke leads the way here, as its development pipeline represents 8% of its total assets. What's more, it has already preleased 65% of this space, suggesting it will pay immediate dividends upon delivery.
Meanwhile, First Industrial, EastGroup, and Prologis also have meaningful development programs underway, with the trio's pipeline between 2% and 4% of their current assets. However, they're not quite as far along in leasing this space, as Prologis has 43% preleased, First Industrial is up to 34%, and EastGroup only has 9%. That's because they are building new logistics space thinking they'll secure tenants. While that's a riskier strategy, these bets should pay off, given the projected demand.
Rexford has a slightly different growth playbook. The company is a consolidator, focused solely on the Southern California market. While it will buy properties to redevelop them, it primarily focuses on purchasing established facilities with below-market leases that will benefit from future rent growth. That differentiated strategy has paid dividends over the years, which is why Rexford's stock trades at such a high premium.
Shopping for value in a high-price segment
Logistics-focused industrial real estate is in high demand these days, so investors are paying a premium for REITs focused on these facilities. However, First Industrial, EastGroup, and Duke Realty stand out as relative bargains. That makes them look like the most compelling buys in the sector these days for investors hunting for value, since they could produce higher returns.