U.S. Markets closed

Duke Realty Upgraded to Buy

Zacks Equity Research

On Apr 1, 2014, Zacks Investment Research upgraded Duke Realty Corp. (DRE) to a Zacks Rank #2 (Buy). The upgrade of this real estate investment trust (:REIT) came on the back of its solid fourth-quarter 2013 results and improving operating fundamentals.

Why the Upgrade?

Duke Realty posted a positive earnings surprise of 7.4% for fourth-quarter 2013. 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.

Moreover, in first quarter 2014, Duke Realty inked a deal with the freight forwarding wing of FedEx Corp. (FDX), for a build-to-suit project in East Point, GA. This is expected to boost the company’s industrial assets portfolio.

Also, in recent months, ushering in good news for shareholders of Duke Realty, Moody's Investors Service, announced the affirmation of Baa2 senior unsecured and Baa3 preferred ratings of Duke Realty with a stable outlook. A sound liquidity and modest progress in credit metrics, aided by solid demand for leasing its industrial markets, are reflected in Duke Realty's Baa2 senior unsecured debt rating.

Apart from this, Standard & Poor's Ratings Services upgraded Duke Realty 's corporate credit and senior unsecured debt ratings to BBB, from BBB-, with a stable outlook, citing the company’s focus on balance sheet deleverage, favorable fundamentals, conservatively funding investment activity and managing development. Favorable ratings play a notable role in preserving investor confidence in the stock and its creditworthiness in the market.

Duke Realty continues to make concerted efforts to lower its suburban office assets as the fundamentals of this market remain weak. On the other hand, the company is focused on enhancing its bulk industrial properties and reached its goal of 60% for this segment’s investment. This is expected to reduce cash flow volatility and bodes well for long-term growth.

Owing to these bullish factors, the tendency for an upward estimate revision has been obvious in recent times. For the first quarter 2014, 4 estimates in the last 60 days and 1 estimate over the last 30 days moved north. But there were no southward movement in estimates over both time frames. Additionally, the long-term earnings growth forecast for Duke Realty is 4.41%. These factors made way for the upgrade.

Other Stocks to Consider

Apart from Duke Realty, investors interested in the REIT industry may consider Cousins Properties Incorporated (CUZ) and Public Storage (PSA). Both the stocks have a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and 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

Zacks Investment Research