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Balanced View on Duke Realty

Zacks Equity Research

On March 24, 2014, we issued an updated research report on Duke Realty Corp. (DRE), a commercial real estate investment trust (:REIT).

On Jan 29, Duke Realty finally posted a positive earnings surprise of 7.4% for fourth-quarter 2013, after posting in-line results for the past few quarters. In particular, the company’s core funds from operations (:FFO) of 29 cents per share surpassed both the Zacks Consensus Estimate and the prior-year quarter FFO per share by 2 cents. Better–than-expected revenues and higher net operating income attributed to the year-over-year increase at the company.

We believe that Duke Realty’s portfolio repositioning efforts to strengthen its bulk industrial assets base and lower its suburban office assets bode well for long-term growth. In relation to this, the company’s achievement of its goal of 60% for industrial assets investment in 2013 is commendable. Moreover, Duke Realty’s latest deal with the freight forwarding wing of FedEx Corp. (FDX), for a build-to-suit project in East Point, GA will further boost the company’s industrial assets portfolio.

Apart from this, the strong fundamentals of the healthcare sector position Duke Realty well for growth, going forward. The recent rating affirmation of Duke Realty is also encouraging and plays a notable role in preserving investor confidence in the stock and its creditworthiness in the market.

However, although Duke Realty’s large development pipeline is encouraging for its future growth, it increases operational risks.  Also, while the company is shedding its suburban office portfolio, the company still has exposure to such assets that may dent its top-line growth. And with a gradual reduction in the Fed’s support, interest rates are expected to increase, which may in turn hurt the rate-sensitive business of the company in the long run.

Over the last 30 days, the Zacks Consensus Estimate has moved up by a penny to $1.14 per share for 2014. On the other hand, it remained stable at $1.20 for 2015. The stock currently has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Investors interested in REIT industry may consider stocks like Cousins Properties Inc. (CUZ) and Public Storage (PSA). Both stocks have a Zacks Rank #2 (Buy).

Note:FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.

Read the Full Research Report on PSA
Read the Full Research Report on DRE
Read the Full Research Report on CUZ
Read the Full Research Report on FDX

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