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Duke Realty Prices 3.375% Senior Unsecured Notes at 104.1%

Zacks Equity Research

Duke Realty Corporation DRE recently announced pricing of the company’s 3.375% senior unsecured notes worth $175 million, underwritten through its operating partnership, Duke Realty Limited Partnership. The notes are priced at 104.162% of par value, plus accrued interest from Jun 15, 2019, up to (but not including) the date of delivery of the notes, with a re-offer yield of 2.796%.

In fact, the notes are being offered as additional notes under an indenture pursuant to which, in December 2017, Duke Realty Limited Partnership had initially issued 3.375% senior unsecured notes worth $300 million due 2027.  Hence, the additional notes will have substantially identical terms as the initial notes.

Specifically, the newly-issued debt security will mature on Dec 15, 2027, paying semi-annual interest on Jun 15 and Dec 15 of each year, with the first payment on Dec 15, 2019. Settlement of the offering is anticipated to occur on Aug 16, 2019 and is subject to the fulfillment of customary closing terms.

Net proceeds will be used to reduce the outstanding balances on the company’s unsecured senior line of credit and for general corporate purposes. 

By paying down its debt obligations, this offering is anticipated to provide flexibility to the company. In addition, it reflects the company’s focus to address its financial obligations in an efficient way. Also, since unsecured notes can be borrowed at lower rates, this new debt will result in lower funding cost.

These efforts will likely boost Duke Realty’s balance sheet and liquidity position. In fact, as of Jun 30, 2019, the company’s senior unsecured debt had an investment-grade rating of BBB+ from Standard & Poor’s and Baa1 from Moody’s. Further, efforts to improve leverage metrics indicate its commitment to maintain a strong credit profile.

With a robust financial position, the company is well equipped to bank on growth opportunities and its robust development platform. In fact, resilient consumer sentiment, low unemployment level and rising wages have resulted in healthy performance of the industrial and logistics sectors. Moreover, services like same-day delivery have been increasing popularity of last-mile properties. Hence, it is an opportune moment for industrial REITs, including Prologis, Inc. PLD, Terreno Realty TRNO and Liberty Property Trust LPT to develop industrial properties and warehouses.

As for Duke Realty, in second-quarter 2019, the company initiated nine development projects, with estimated costs of $395 million. This will likely enable the company to enjoy high occupancy and rents when the properties become operational.

Encouragingly, Duke Realty currently carries a Zacks Rank #3 (Hold). Over the past three months, the stock has gained 8.5%, outperforming the industry’s 3.9% rise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nonetheless, recovery in the industrial market has continued for long and a whole lot of new buildings are becoming available, leading to higher supply and lesser scope for rent and occupancy growth. Intensifying trade tensions is another concern.

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