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Here's Why You Should Hold Onto Duke Realty (DRE) Stock Now

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·4 min read
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Duke Realty Corp. DRE, which has emerged as a domestic pure-play industrial real estate investment trust, is positioned to bank on favorable fundamentals of the industrial real estate market due to its solid operating platform and robust scale.

Amid an e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies, demand for logistics infrastructure and efficient distribution networks has been shooting up. This, in turn, is aiding the industrial real estate market to prosper. Apart from the fast adoption of e-commerce, logistics real estate is poised to benefit from an increase in inventory levels post the global health crisis, thereby opening up possibilities for industrial landlords.

Duke Realty, which enjoys a strong footing in this asset category, is witnessing solid demand for industrial real estate as reflected by the leasing levels of the properties. This industrial REIT leased 9.5 million square feet of space during the September-end quarter. Tenant retention was 71.5% for the reported quarter and 86.2% after considering the immediate backfills. Also, the company registered same-property net operating income growth on a cash basis of 3.8% year over year. This was backed by rental-rate growth.

Duke Realty reported overall cash and annualized net effective rent growth on new and lease renewals of 21.9% and 34.8%, respectively, during the third quarter. The stabilized in-service portfolio was 98.3% leased as of Sep 30, 2021, up 10 basis points (bps) sequentially and 80 bps from the prior-year quarter end.

Duke Realty is making efforts to improve its portfolio due to development and acquisitions in the strategic markets with solid growth potential. Moreover, 97% of its land bank is in the coastal markets, which will be hosting most of the company’s future speculative developments. With a robust pipeline development in both build-to-suit and speculative projects and an active pipeline of build-to-suit prospects, DRE is poised to enhance its presence in the Tier 1 markets.

Duke Realty enjoys a strong balance sheet, ample liquidity and easy access to capital. It has no significant debt maturities until late 2024 and its leverage metrics look healthy. The company focuses on a disciplined use of a $1.2 billion credit facility and maintains a high unencumbered asset pool. Given its balance-sheet strength and prudent financial management, the company is poised to bank on growth opportunities.

Duke Realty currently carries a Zacks Rank #3 (Hold). DRE’s shares have rallied 32.9% over the past three months, outperforming the industry’s 14.4% growth. The estimate revision trend for its 2022 FFO per share indicates a favorable outlook for the company. The Zacks Consensus Estimate for full-year FFO per share has been revised marginally upward to $1.74 over the past two months.

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However, with the asset category being attractive in these challenging times, there is a development boom in several markets, which might fuel competition and curb pricing power. New supply is expected to put pressure on the vacancy level, which might increase in the upcoming quarters.

Furthermore, the industrial real estate market’s recovery that has prevailed for long and the growth of e-commerce sales are likely to stabilize in the upcoming quarters. Therefore, robust performance is unlikely in the near term. With comparatively more modest demand, coupled with new supply, the pace of overall growth in rent will likely moderate in the upcoming period.

Stocks to Consider

Some better-ranked stocks from the REIT sector include Prologis PLD, CubeSmart CUBE and Rexford Industrial Realty, Inc. REXR.

Prologis carries a Zacks Rank of 2 at present. Prologis’ long-term growth rate is projected at 8.10%.

The Zacks Consensus Estimate for PLD’s first-quarter 2022 FFO per share has been revised marginally upward in a month.

The Zacks Consensus Estimate for CubeSmart’s 2022 FFO per share has moved marginally north to $2.10 over the past month.

Currently, CubeSmart carries a Zacks Rank of 2. CUBE's long-term growth rate is projected at 11.2%.

The Zacks Consensus Estimate for Rexford Industrial’s 2022 FFO per share has moved 1.2% north to $1.63 over the past two months.

Currently, Rexford Industrial carries a Zacks Rank of 2. REXR's long-term growth rate is projected at 12.9%.

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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