Amid e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies, demand for logistics infrastructure and efficient distribution networks has been increasing. This is helping the industrial real estate market grow, driving prospects for industrial REITs like Duke Realty DRE, Prologis Inc. PLD, Terreno Realty Corporation TRNO and Liberty Property Trust LPT.
Specifically, Duke Realty remains well poised to capitalize on this trend given its solid operating platform and balance-sheet strength. The company has resorted to the sale of sub-urban office assets and medical-office buildings in the past, in a bid to transform itself into a domestic-focused industrial property REIT. This augurs well amid favorable market environment in this asset class.
In April, Duke Realty delivered first-quarter 2019 core FFO per share of 33 cents, which surpassed the Zacks Consensus Estimate of 32 cents. Results indicate overall improved operations as well as increased investments in new industrial properties. In addition, Duke Realty raised its guidance for core FFO per share to $1.39-$1.45 for 2019 compared with the prior estimate of $1.37-$1.43.
Notably, Duke Realty has more than 45 years of experience in operation and development of industrial real estate. It focuses on having facilities in major U.S. logistics markets nationwide, which help generate solid demand from e-commerce and traditional distribution customers for its industrial properties.
Particularly, the company is making efforts to expand its portfolio on the back of development and acquisitions. In fact, development is expected to continue at a solid pace this year and the company’s guidance for development starts is $600-$800 million, while the outlook for acquisitions of properties is $100-$300 million.
As of Mar 31, 2019, the company’s development pipeline was 52% leased and comprised 20 properties, totaling 9.2 million square feet, with projected costs of $765 million. The company aims to further strengthen its foothold in Tier 1 markets through disciplined capital-recycling efforts.
With respect to tenants, the company has a big-box focus. This helps the company have higher credit quality tenants on its roster. Also, it leads to fewer overall tenants that the company needs to manage. Additionally, a decent portion of the company’s tenant base is e-commerce oriented, enabling it to capture growth opportunities from the e-commerce boom.
Duke Realty remains committed toward enhancing its balance-sheet position and improve leverage metrics. With a flexible balance-sheet position, the company is well poised to capitalize on growth opportunities and address debt maturities in the future. In fact, Duke Realty does not have any significant debt maturities until 2021.
Nevertheless, recovery in the industrial market has continued for long and new buildings are slated to be completed as well as made available in the near term. This will lead to higher supply as well as lesser scope for rent and occupancy growth.
Also, there are concerns regarding the fate of the U.S. economy amid prevalent trade-war tensions and the declining stimulus from the lower tax rates. In fact, any protectionist trade policy will have an adverse impact on economic growth. This is likely to affect the company’s business and limit growth tempo.
Duke Realty currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Duke Realty Corporation (DRE) : Free Stock Analysis Report
Liberty Property Trust (LPT) : Free Stock Analysis Report
Prologis, Inc. (PLD) : Free Stock Analysis Report
Terreno Realty Corporation (TRNO) : Free Stock Analysis Report
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