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The Right REITs for Data and e-Commerce

12/05/2017 5:00 am EST

Focus: REITS

Tim Plaehn

Investment Research Analyst, Investors Alley

If you are like me, you might have trouble with buying shares of Amazon (AMZN), which trades at a P/E of near 300. An alternative way to invest and profit from the growth in online sales is to own shares of the REITs that provide the warehouse space needed to fill and deliver online orders, notes Tim Plaehn, editor of The Dividend Hunter.

These REITs can grow right along with the growth in online sales regardless of who is doing the selling. The difference is they can do it profitably, pay attractive dividends to investors and grow those dividends over time. Here are three REITs that directly benefit from the growth in online retail sales.

Equinix (EQIX) owns and leases spaces in the data center properties it owns. The company has a global footprint with 180 data centers located on every populated continent. Equinix converted to REIT status in late 2014 and started paying dividends for the first quarter of 2015.

Growth is derived from the need for more Internet communications and data computing power. This is directly tied to the growth in online retail sales. Free cash flow reported as funds from operations (FFO) and the dividend are expected to grow at a low teens rate.

Data center and growth focused REIT expert Bill Stoller rates EQIX as his highest conviction REIT for 2018. The stock currently yields 1.7%.

Monmouth Real Estate Investment Corp. (MNR) is an industrial property REIT that owns 108 warehouse and logistics properties. Monmouth is unique in that 54.5% of its revenue comes from lease contracts with leases from FedEx Ground, FedEx Express, and FedEx Supply Chain Services.

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To be blunter, Monmouth Real Estate is a significant landlord for FedEx (FDX). FedEx has evolved into a dominant logistics company including delivery of online sales purchases.

Monmouth’s industrial properties are “mission critical” for the processing and delivery of online retail sales. The company recently boosted its quarterly dividend by 6.25%. The stock yields 3.9%.

With a $35 billion market cap, Prologis (PLD) is the largest industrial REIT. The company is the world’s leading owner, operator and developer of logistics real estate. It is likely that almost every product sold by online retailers passes once or more through a Prologis owned property.

The company forecasts a 162% projected growth of e-commerce sales from 2015-2020. Company presentations point out that e-commerce business requires approximately three times the warehouse floor space compared to brick and mortar retailers.

Online sales do not have stores, but they still require a lot of commercial real estate space to operate their businesses. The difference is that space is in industrial warehouses instead of stores.

For Prologis, the growth in e-commerce and the other logistics businesses it supports with allow the company to grow profits, FFO and dividends at a low mid-teens growth rate. The stock yields 2.6%.

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