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Duke Realty (DRE) Gears Up for Q3 Earnings: What to Expect

Zacks Equity Research

Duke Realty Corp. DRE is scheduled to report third-quarter 2019 results on Oct 30, after the market closes. The company’s results will likely reflect year-over-year growth in its funds from operations (FFO) per share and revenues.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a positive surprise of 2.86%. Results indicated overall improved operations as well as increased investments in new industrial properties.

Over the preceding four quarters, the company beat the Zacks Consensus Estimate on three occasions and met estimates in the other, the average beat being 2.23%. The graph below depicts this surprise history:

Duke Realty Corporation Price and EPS Surprise

Duke Realty Corporation Price and EPS Surprise

Duke Realty Corporation price-eps-surprise | Duke Realty Corporation Quote

Let’s see how things have shaped up.

Factors at Play

The industrial real estate asset category has grabbed headlines in a rising e-commerce market and continues to play a pivotal role, transforming the way how consumers shop and receive their goods. Nevertheless, rising supply as well as a slowdown in global growth, together with trade disputes, have been raising concerns, of late, about this industry’s growth prospects.

Per a study by the commercial real estate services firm — CBRE Group CBRE — with an increase in completion, the U.S. industrial & logistics sector witnessed a 10-basis point uptick in vacancy rate to 4.4% in the third quarter. However, net asking rents inched up 1.3% quarter on quarter to $7.57 per square feet — representing the highest level since CBRE started tracking the metric in 1989. Moreover, rents have climbed 5.7% year over year and this also indicates more than 2 percentage points above the average annual growth rate since 2012.

Notably, e-commerce, food & beverage and home improvement companies have been driving leasing activities. In fact, resilient consumer sentiment, low unemployment level and rising wages are playing key roles in keeping up the industrial and logistics sector’s healthy performance. 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.

As for Duke Realty, its solid capacity to bank on this favorable trend will likely have helped the company witness active leasing and healthy rent levels across a number of properties during the July-September period. The company focuses on having facilities in major MSAs, and key trucking, rail, air cargo and shipping corridors. Such locations help generate solid demand from e-commerce and traditional distribution customers for its industrial properties.

Particularly, the company inked three leases at Greenfield North Business Park, located at Garner, NC in the third quarter. The deals include a renewal and expansion at Greenfield North 900 as well as new leases at Greenfield North 800 and Greenfield North 900.

Moreover, Duke Realty signed five leases aggregating 860,296 square feet in September for four of its properties. The transactions include two full-building leases at the company’s recently-delivered spec properties, a new lease and renewal that enabled another property to achieve full occupancy, as well as another new lease in another building.

Amid these, the Zacks Consensus Estimate for the to-be-reported quarter’s revenues is currently pinned at $215.9 million, indicating a 9.7% increase from the prior-year quarter’s reported tally.

However, recovery in the industrial market has continued for long and a whole lot of new buildings became available in the market during the quarter under consideration, leading to higher supply, and lesser scope for any robust rent and occupancy growth.

The company’s activities during the September-end quarter were inadequate to gain analysts’ confidence. Therefore, the Zacks Consensus Estimate for the third-quarter 2019 FFO per share remained unchanged at 37 cents, over the last 30 days. However, the figure indicates projected year-over-year growth of 5.7%.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Duke Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Duke Realty carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks That Warrant a Look

Here are a few 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:

Stag Industrial, Inc. STAG, scheduled to release earnings on Oct 30, has an Earnings ESP of +1.10% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Digital Realty Trust, Inc. DLR, slated to report third-quarter results on Oct 29, has an Earnings ESP of +2.61% and currently carries a Zacks Rank of 3.

Apartment Investment and Management Company AIV, set to release quarterly numbers on Oct 31, has an Earnings ESP of +0.6% and carries a Zacks Rank of 3, currently.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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