By Dwight Kay, Founder & CEO of Kay Properties & Investments
When investors evaluate potential opportunities for their 1031 Exchanges, they should not only consider Delaware Statutory Trust offerings, but also those DST offerings that feature one major distribution and logistics tenant: FedEx. While no one has a crystal ball and can predict the performance of any real estate asset, we are encouraged by one corporation that leases thousands of locations across the country: FedEx.
According to the American Association of Independent Investors (AAII) FedEx Corporation (FedEx) provides a robust portfolio of transportation, e-commerce and business services and operational units under the FedEx brand umbrella, including:
- FedEx Express:
The FedEx Express segment offers a range of United States domestic and international shipping services for delivery of packages and freight.
- FedEx Ground:
The FedEx Ground segment provides small-package ground delivery services, which includes day-certain service to any business address in the United States and Canada, as well as residential delivery services through its FedEx Home Delivery service.
- FedEx Freight:
The FedEx Freight segment offers less-than-truckload (LTL) freight services.
- FedEx Services:
The FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that support the Company’s operating segments.
As a corporate backed-net lease tenant, Kay Properties likes FedEx for a number of fundamental reasons, including FedEx has a market capitalization of $58.40 Billion making them a very well capitalized tenant to help investors sleep well at night that they have a tenant on a long-term lease that will likely be able to pay rent each month*. Again, while all real estate investments contain no guarantees of monthly distributions and investors should read each PPM paying special attention to the risk section prior to considering an investment, Kay Properties likes FedEx as a tenant for DST properties, especially during turbulent times that need an anchor tenant like FedEx.
Here are ten reasons Key Properties likes FedEx for DST 1031 investments in 2022.
- Up, Up and Up – According to a recent article in MarketWatch, FedEx stock continues to soar, reaching its biggest one day gain in 29 years on June 14 th , 2022, resulting in a 14.4% increase in share price. This type of growth occurring during a bear market and at a time when many public companies’ share prices are plummeting, is worth taking note.
- Shareholder Heaven: FedEx also just raised its shareholder dividend by 53%…. Again, this occurred during a bear market when the broader stock market is taking a beating.
- DST Essential: Over the years, Kay Properties has provided several FedEx DST investments for our investors. While past performance does not guarantee or indicate the likelihood of future results, each FedEx DST investment provided regular monthly rental distributions for our client each and every month – even during COVID-19 pandemic. The essential nature of the FedEx business makes it a popular choice for DST investments.
- Just Order it Online: E-Commerce Logistics Market Is Booming Worldwide and FedEx is a recipient of this growth trajectory. An article in Digitaljournal reports that this hyper-growth is being fueled by the increased consumer adoption using e-commerce as a convenient and viable purchasing practice. Additionally, the internet continues to penetrate pockets of consumers worldwide which allows cross-border e-commerce activities, and a growing number of e-commerce business models being developed worldwide. All of this feeds into the need for a reliable, logistics company as FedEx.
- More Trucks, Please! Parcel volumes continue to grow. According to Pitney Bowes, a technology company that is known for its postage meters and other mailing equipment, FedEx saw its revenue swell to $62 billion in 2021 while growing its market share. The Pitney Bowes survey also found that 23% of American shoppers are shopping more online than ever in their lives, and that nearly 40% of all purchases are now being conducted online.
- Expense Inflation Protection Potential – DST investments with long-term leases to tenants like FedEx are often Net Leased whereby the tenant and not the landlord is responsible for the majority, if not all of, the property level maintenance, taxes and insurance costs. This can be a very nice thing in an inflationary environment when your tenant is responsible for increased costs due to inflation and not you as the landlord. This is not the case with many DST investment asset classes such as multifamily, self storage and others whereby the landlord is responsible for all maintenance, taxes and insurance cost increases due to rising inflation.
- A high-margin business model. FedEx has done a remarkable job leveraging its reliable and growing pick-up and delivery (P&D) routes, its linehaul run routes, and its efficient expense management practices. As a result, FedEx continues to deliver higher than average profit margins within the logistics and delivery industries, and presents a real challenge for any competitor to attempt to penetrate its business model.
- Room to Grow: FedEx has a “lucrative backdoor” that can grow into a larger role in e-commerce. According to a Citigroup analyst, FedEx can boost its profits by $1 billion annually just by leveraging its recent takeover of ShopRunner and the technology prowess of Microsoft. By doing this, explained the Citigroup analyst, FedEx could become e-commerce’s universal shipping cart that would attract a base of millions of subscribers that would receive free expedited shipping.
- The Anchor to a DST 1031 Investors Portfolio – A DST with a long-term lease to a company like FedEx can be a potential anchor to an investors DST 1031 portfolio in turbulent times. With a pending recession and uncertainty throughout the world, having a long-term net lease with one of the world’s largest companies can be an anchor for an investors DST 1031 portfolio. Although all investments have risks and investors should read each Private Placement Memorandum (PPM) carefully, investors are deciding that a piece of their DST 1031 investments in a debt-free FedEx DST property makes a lot of sense in today’s uncertain economic climate.
- Demand for Industrial Land Surges: The exponential growth of e-commerce has created a huge need for warehouse and data center space. According to a recent Wall Street Journal article, the e-commerce boom has already turned warehouses and fulfillment centers into one of the hottest property types on the planet. This lack of available space suitable for logistics operations has also meant that rents are surging while vacancy rates are some of the lowest in history.
Ask The Kay Investments TeamAsk the Kay Investments Team your questions about 1031 exchanges, Delaware Statutory Trusts or how to save on taxes when you sell an investment property. They can help.
About Kay Properties and www.kpi1031.com
Kay Properties & Investments is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market. Kay Properties team members collectively have over 150 years of real estate experience, are licensed in all 50 states, and have participated in over $30 Billion of DST 1031 investments.
* Past performance does not guarantee or indicate the likelihood of future results.
* No representation is made that any DST investment will or is likely to achieve profits or losses similar to those achieved in the past or that losses will not be incurred on future offerings.
Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. This case study may not be representative of the outcome of past or future offerings. Please speak with your attorney and CPA before considering an investment.
There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. All offerings discussed are Regulation D, Rule 506c offerings. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential distributions, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals, and risk tolerances. Securities offered through FNEX Capital, member FINRA, SIPC.