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Duke Realty (DRE) Gears Up for Q1 Earnings: What to Expect?

Zacks Equity Research

Duke Realty Corp. DRE is scheduled to report first-quarter 2019 results on Apr 24, after the market closes. The company’s results will likely reflect year-over-year growth in its funds from operations (FFO) per share, while revenues are expected to decline.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered an in-line performance with respect to FFO per share. Results mirrored overall year-over-year improvement in operations as well as increased investments in new industrial properties.

However, the company beat the Zacks Consensus Estimate in two out of the trailing four quarters and met estimates in the other two, the average beat being 1.57%. The graph below depicts this surprise history:

Duke Realty Corporation Price and EPS Surprise
 

Duke Realty Corporation Price and EPS Surprise | Duke Realty Corporation Quote

Let’s see how things are shaping up.

Factors at Play

The industrial real estate market has been gathering steam on the back of solid consumer spending and high consumer confidence, strengthening e-commerce market and a healthy manufacturing environment. Demand for warehouses, distribution centers and other industrial property remains strong amid paradigm shift of consumers opting for online shopping. Services like same-day delivery are gaining traction, and last-mile properties in high-income urban areas are witnessing solid pricing, occupancy and growth in rentals.

Going by a report issued by commercial real estate services firm — CBRE Group — availability fell for 35 straight quarters to 7% for the U.S. industrial market in the first quarter, denoting the lowest point since 2000. Net asking rents increased 2.2% in the quarter to $7.51 per square feet — marking the highest level since 1989, per a CBRE report.

As for Duke Realty, its solid capacity to bank on this favorable trend will likely have helped the company witness high occupancy, active leasing and healthy rent levels across a number of properties during the Jan-Mar period.

During the quarter under review, the company executed a number of leases. These included signing of two new leases in its Greenfield North 1001 building at 1001 North Greenfield Parkway in Garner, NC. The company also announced that it is developing a 194,120-square-foot, build-to-suit, rail accessible warehouse for Schilli Distribution Services in Savannah.

Furthermore, Duke Realty announced signing a lease for Grand Lakes 4053 in Grand Prairie. Particularly, at this 189,200-square-foot warehouse, the company inked a lease deal with the designer, manufacturer and the distributor of sustainable office furniture — Cherryman Industries.

However, the company has been disposing non-strategic assets in a bid to focus on industrial properties. While such efforts are a strategic fit for the long term, these might weigh on its top-line growth in the first quarter. In fact, for 2019, the company anticipates dispositions of non-strategic properties of $350-$550 million.

Further, recovery in the industrial market has continued for long, and a whole lot of new buildings are slated to be completed and made available in the near term. This will lead to higher supply, and lesser scope for rent and occupancy growth. Intensifying trade tensions remain another concern.

Amid these, the Zacks Consensus Estimate for the to-be-reported quarter’s revenues is currently pinned at $205.9 million, indicating a 12.2% drop from the prior-year quarter reported tally.

Additionally, Duke Realty’s activities during the Mar-end quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the first-quarter 2019 FFO per share remained unchanged at 32 cents, over the last 30 days. However, the figure indicates projected year-over-year growth of 3.2%.

Here is what our quantitative model predicts:

Duke Realty has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Earnings ESP: The Earnings ESP for Duke Realty is +3.94%.

Zacks Rank: Duke Realty carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Digital Realty Trust, Inc. DLR, slated to release first-quarter earnings on Apr 25, has an Earnings ESP of +1.27% and carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate Equities, Inc. ARE, scheduled to report quarterly numbers on Apr 29, has an Earnings ESP of +0.3% and holds a Zacks Rank #2.

Public Storage PSA, set to release results on May 1, has an Earnings ESP of +0.75% and carries a Zacks Rank of 3.

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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