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Duke Realty (DRE) Gears Up for Q4 Earnings: What to Expect?

Zacks Equity Research

Duke Realty Corp. DRE is scheduled to report fourth-quarter 2018 results on Jan 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’s (REIT) core FFO per share of 35 cents surpassed the Zacks Consensus Estimate by a penny. Results were backed by growth in rental and related revenues, overall improved operations and higher 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 occasions, with average beat being 1.6%. 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 amid solid U.S. economy, job-market gains, thriving e-commerce market, high consumption levels and robust consumer confidence. Demand for warehouses, distribution centers and other industrial property remains strong amid paradigm shift of consumers opting for online shopping. In fourth-quarter 2018 too, we expect these industry tailwinds to have fortified the industrial real estate market.

In fact, going by a report issued by commercial real estate services firm — CBRE Group CBRE — availability rate shrunk 10 basis points (bps) to 7% for the U.S. industrial market in fourth-quarter 2018, denoting the lowest point since 2000. Moreover, the quarter witnessed positive net absorption for the 35th consecutive quarter.

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. In fact, during the Oct-Dec quarter, the company executed a number of leases, including a deal with SOFAMANIA to rent out space at 175 Portside Court in Savannah. In addition, its Savannah port area portfolio is fully occupied, reflecting robust demand for the company’s properties.

Furthermore, it entered into a pre-leasing agreement at 5 Ethel Boulevard in the Meadowlands, that enabled the company to achieve 64% preleasing of its new warehouse.

Amid these, the Zacks Consensus Estimate for the fourth-quarter revenues is currently pinned at $202.8 million, indicating an increase of 13% from the prior-year quarter.

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 will likely dampen the company’s fourth-quarter results and dampen its profitability. In fact, for 2018, the company anticipates dispositions of $500-$600 million.

Also, since the company has a number of ongoing development projects, amid rising interest-rate environment, we expect its development and financing activities to have slowed down.

Additionally, Duke Realty’s activities during the quarter under review were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for fourth-quarter 2018 FFO per share remained unchanged at 35 cents, over the last 30 days. Further, estimates remained unrevised for 2018 FFO per share as well, at $1.34. Management’s 2018 guidance for core FFO per share is $1.31-$1.35. 

Earnings Whispers

Our proven model does not conclusively show that Duke Realty is likely to beat estimates this season. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Duke Realty has an Earnings ESP of 0.00%.

Zacks Rank: Duke Realty has a Zacks Rank of 3, at present.

Although a favorable Zacks Rank is a meaningful and leading indicator of a likely beat in terms of FFO per share, we also need a positive Earnings ESP to be reasonably confident of a positive surprise.

Stocks That Warrant a Look

While the other players in this space are lined up to report their financial results, below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank stocks here.

AvalonBay Communities AVB, slated to report fourth-quarter results on Feb 4, has an Earnings ESP of +0.22% and holds a Zacks Rank of 3.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% 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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