Scale…

If a business’s goal is growth, there’s arguably nothing more important.

Can a company increase revenue faster than costs? Can it enter new markets and find new customers while controlling expenses?

Accomplishing that feat should be the goal of any business worth its salt. And identifying the companies that can scale – and avoiding those that can’t – should be the goal of every investor.

I saw this firsthand with my first job out of college, working as a retail developer. There, I leased space to companies like Advance Auto Parts, Dollar General, PetSmart, Talbots, CVS, Walgreens, Blockbuster, and Waffle House. Later, I also worked with Cato, Econo Lube N’ Tune, Aaron Rents, Tractor Supply, McDonald’s, and Walmart, too.

Remember: This was over 30 years ago, back when these names weren’t nearly so big. There wasn’t anything to take for granted back then, only admire as they scaled their operations step by step.

In so doing, they gained greater followings, developed more cost-efficient production lines, and attracted more capital at better rates.

My first big success was with Advance Auto. As I’ve told readers in the past, I got involved with the company in the ’90s when it was a sleepy chain with around 100 stores.

But I saw the potential for the business to grow and scale its operations.

As a young guy looking to make it as a real estate developer, I convinced the company to give me a shot expanding their footprint in the South. Over about four years, I developed around 40 stores for the company – in South Carolina, Georgia, and Alabama.

Today, Advance Auto boasts over 4,000 stores in the U.S.

Admittedly, the company has fallen on hard times recently. But for its time, Advance Auto was a textbook example of a business scaling up operations.

Of course, others – like Blockbuster – scaled right up into disaster (thanks to Netflix).

Competitors chipped away at their market share, and they lost their efficient edges. In short, “the extent of their market,” to borrow from Adam Smith, clashed with their expansion goals.

That’s one of the reasons I like publicly traded commercial real estate so much – particularly real estate investment trusts, or REITs. The market they operate in is enormous!

Today, we’ll have a look at two REITs worthy of your attention. They may be large already, but their growth story isn’t close to over.

Two REITs That Keep Scaling Up

Last year, according to Statista, global CRE was worth more than $38.5 trillion, up from $36.7 trillion in 2024. Yet publicly traded landlords own a fraction (around 10%) of that pie…

Which means they have so much room to expand.

At the same time, there are individual REITs that have already established intensely effective platforms of scale. That puts them in particularly solid positions to take bigger market shares still.

I’m always a big fan of Realty Income (O), the world’s largest net-lease REIT in the world. It owns a whopping 15,600 free-standing properties in all 50 U.S. states, as well as in the U.K. and six other European countries.

Scale is one of Realty Income’s primary competitive advantages – and one it’s worked hard to establish over the past five decades. As a result, it was able to invest $13.4 billion between 2023 and 2024, including casino and data centers purchases that should serve it well.

Better yet, those purchases were made without incurring harmful levels of debt. The REIT has such a solid balance sheet that it’s rated A by Moody’s and A- by S&P Global.

That doesn’t happen by chance. It happens through hard work and continuous careful calculations, which I expect to see more of this year. While analysts expect only around 3% growth in 2025 and again in 2026, I think that could shift higher as the months unfold.

Realty Income has increased its dividend for 30 years straight now. And shares are trading at 13.5 times price to adjusted funds from operations – the REIT version of earnings – versus their normal 17.2 times. Plus, it features a 5.7% dividend yield.

I’m forecasting 16% to 20% annual growth.

A second REIT to consider is Prologis (PLD), an industrial landlord with 5,900 properties across four continents and 20 countries. It has over 6,500 customers all told, generating more than $6.3 billion in annual net operating income.

Prologis is also actively developing over $4.5 billion worth of properties… with another $41 billion of potential build-out from its land holdings. Its size, reach, and reputation all enable that kind of expansion.

Yet, as with Realty Income, it doesn’t take that status for granted. Prologis works hard to maintain impressive credit metrics, including:

  • A 26% debt-to-gross market cap

  • 9 times debt to adjusted earnings before interest, taxes, depreciation, and amortization

  • An A2 rating from Moody’s and an A from S&P

It’s also no wonder that it has averaged 16% earnings growth between 2020 and 2023. And analysts expect it to grow 4% this year, 10% in 2026, and 10% again in 2027.

Prologis has increased its dividend every year since 2013, a trend that should continue. Shares are yielding 3.8%, and I expect them to return 15% to 20% over the next 12 months.

At Wide Moat Research, we examine all competitive advantages of a given company, and we consider scale (advantage) to be one of the most important. In addition to REITs, we consider utilities, banks, homebuilders, and asset managers to be opportunistic based upon their near-monopoly status. Tune into my YouTube channel every week where I discuss some of the best “wide moat” opportunities in the market.

Regards,

Brad Thomas
Editor, Wide Moat Daily

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What are some factors you look for in a business’s growth story? Write us at [email protected].