Two of the most well liked industrial actual property funding trusts (REITs), STAG Industrial (STAG -0.90%) and Prologis (PLD -2.12%), just lately reported their full-year 2022 earnings, giving a glimpse at what might lie forward for the red-hot trade.

Each corporations have benefited from low provide and excessive demand for industrial actual property over the previous few years, however with the economic system slowing, it appears one could also be faring higher than the opposite. In case you’re questioning which inventory is the higher purchase between the 2 proper now, let’s check out every firm and see which one comes out forward.

1. Portfolios

Each corporations personal and lease varied varieties of industrial actual property, starting from warehouses, manufacturing buildings, third-party logistics facilities, and distribution services. STAG Industrial operates solely in the USA, whereas Prologis has a worldwide footprint, leasing industrial properties in South America, Asia, and Europe. With curiosity or possession in practically 5,500 industrial buildings, Prologis’s portfolio is over 10 instances the scale of STAG Industrial, which has curiosity and possession in simply over 560 buildings.

The restricted provide of business actual property in the USA has pushed occupancy for each corporations to document ranges. Prologis’s portfolio was 98% occupied on the finish of 2022, whereas STAG Industrial’s was 99% occupied. Clearly, it is a signal of wholesome demand, even with a slowing economic system. 

2. Development alternatives

In 2022, STAG Industrial executed 101 leases to new or renewing tenants, which have been leased for round 24% greater than the yr prior. It additionally acquired 26 buildings, including 20.4 million sq. ft of actual property to its portfolio. It is a barely decrease degree than in 2021, however rising rates of interest are impacting the corporate’s value of borrowing, motivating it to gradual its price of progress.

Prologis went on an enormous purchasing spree final yr, spending over $2 billion on third-party acquisitions and one other $2.8 billion in new acquisitions. It additionally purchased certainly one of its largest rivals, Duke Realty, in a $23 billion deal, including 142 million sq. ft of operational properties and seven million sq. ft of energetic developments to its portfolio in 19 markets throughout the nation.

Each corporations have indicated plans to decelerate enlargement efforts in 2023 to evaluate the affect of inflation on the economic system. Prologis is anticipating to spend round $5.4 billion in developments and acquisitions within the coming yr, whereas STAG Industrial plans to spend round $300 million to $700 million.

3. Income and money

Each corporations reported wholesome earnings for the complete yr of 2022. Nevertheless, Prologis’s earnings outshined STAG Industrial’s. Core funds from operation (FFO), a metric that works equally to earnings per share (EPS) for REITs, grew by 24% yr over yr for Prologis and solely 7.8% for STAG Industrial. Prologis additionally noticed internet earnings per share (one other key metric for REITs) develop by practically 8%, whereas STAG Industrial noticed internet earnings lower by 13% in comparison with final yr.

Knowledge supply: Prologis’ and STAG Industrial’s full-year 2022 earnings. Chart by writer.

Rents for Prologis’s portfolio additionally appear to be rising at a bigger clip than its smaller counterpart. Within the fourth quarter of 2022, Prologis noticed a internet efficient lease change of over 50%, whereas STAG Industrial noticed a 14% improve throughout that very same interval.

STAG has accomplished a fantastic job decreasing its debt publicity as of late. The corporate paid off higher-cost debt earlier within the yr and ended 2022 with a debt-to-earnings ratio earlier than curiosity, taxes, depreciation, and amortization (EBITDA) of 5.2 instances. That is proper across the REIT common. It additionally had $847 million in money and money equivalents available, which was greater than sufficient to pay its near-term debt obligations and keep its dividend payout. 

Prologis is flush with money, having $4 billion in liquidity. Its debt ratios are additionally very low for a REIT, at simply 3.7 instances its EBITDA. The REIT has no main debt maturities till 2026, placing it in a powerful monetary place initially of the yr.

4. Dividend protection and yield

STAG Industrial not solely pays its dividends month-to-month, but it surely has a 3.8% yield, which is over 1% larger than Prologis’ on the time of this writing. STAG has elevated its dividend payout yearly since its IPO in 2011, doubling its payouts during the last 12 years. 

Knowledge supply: Prologis’ and STAG Industrial’s full-year 2022 earnings. Chart by writer.

Prologis has maintained simply 9 years of constant dividend will increase, however the REIT has grown its payout at a sooner clip. Prologis’s payouts have risen 182% during the last 10 years, and its dividends are higher coated than STAG Industrial’s.

Which is the higher purchase?

Given the larger progress alternatives, stronger monetary place, and newest earnings, Prologis could be my select of the 2. STAG Industrial might supply extra favorable pricing proper now, but it surely has proven slower progress charges and is extra leveraged with deby. At the moment, the inventory is buying and selling round 16 instances its FFO, whereas Prologis trades at a premium of 24 instances its FFO. It additionally pays the next yield. However the inventory has much more danger and fewer progress alternatives. Making Prologis the clear choose of the 2.