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Why Should You Add Prologis (PLD) to Your Portfolio Now?

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If REIT’s dependence on debt for their business and consideration as bond substitutes for their high and consistent dividend-paying nature has made investors skeptical about their performance in a rising rate environment, then time is now apt to think again. This is because some of the asset categories in the real estate market are displaying robust fundamentals, thus offering decent scope to boost future cash flows.

One such asset category is the industrial real estate that is witnessing sturdy demand amid an economic recovery, growth of e-commerce and U.S.-based manufacturing. This, in turn, is driving demand for warehouse space, as companies are compelled to enhance and renovate distribution and production platforms.

Therefore, this is the right time to add a few industrial REITs to your portfolio. Today, we bring one such stock — Prologis Inc. (PLD - Free Report) — that continues to exhibit strong fundamentals and improving prospects.

Backed by growth in rents and high occupancy, this industrial REIT reported better-than-expected performance in second-quarter 2017. In addition, Prologis remains focused on bolstering its liquidity. Further, the company raised its core funds from operations (FFO) per share outlook for full-year 2017 amid sound operating fundamentals and higher net promote income.

Moreover, in August, the company completed the acquisition of its partner’s stake in the Brazil portfolio. This move enabled the company gain full ownership of Prologis CCP, which was a joint venture between Prologis and Cyrela Commercial Properties. Furthermore, the company’s build-to-suit activity also remained solid in 2017, with 20 such development projects being accomplished in the first half. These projects included over 7 million square feet of space.

Also, this Zacks Rank #2 (Buy) stock has risen 20.2% year to date, outperforming its industry’s rally of 3.1%.



Why a Solid Choice?

Revenue Strength: Prologis’ top line has been exhibiting strength for the past several quarters. In fact, since first-quarter 2015 through second-quarter 2017, the company reported better-than-expected revenue figures in each quarter. Given the strength in its fundamentals, this upbeat trend is likely to continue ahead.

Cash Flow Growth: Prologis enjoyed a historical cash flow growth (3-5 years) of 30.8%, which comfortably exceeded the industry’s growth of 18.0%. Also, the company’s current cash flow growth of 22.5% is way ahead of the industry’s rate of 16.0%.

FFO per Share Growth: Prologis witnessed 12.6% growth in FFO per share over the last three-five years against 8.0% of that of the industry. In addition, FFO per share is estimated to grow at the rate of 23.6% for 2017.

Strong Leverage: The debt-to-equity ratio for Prologis is 0.62 compared with the industry average of 0.84. This highlights greater financial stability of the company and lesser risk for shareholders.

Superior ROE: Prologis’ Return on Equity (ROE) is 6.65% compared with the industry’s average of 5.97%. This indicates that the company reinvests more efficiently compared to the industry.

Estimate Revisions: The stock has seen the Zacks Consensus Estimate for current-year FFO per share being revised 0.7% upward to $2.81 in two months’ time. Also, the Zacks Consensus Estimate for the next year has been revised north over the past three months. This reflects analysts’ bullish sentiments on the stock.

Other Stocks to Consider

Other similarly-ranked stocks in the REIT space include PS Business Parks, Inc. , InfraREIT Inc. and Sabra Health Care REIT, Inc. (SBRA - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While PS Business Parks and InfraREIT have expected long-term growth rates of 5% and 8%, respectively, the expected long-term growth rate for Sabra Health Care is currently pegged at 3.3%.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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