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What's in the Offing for Duke Realty's (DRE) Q3 Earnings?

·5 min read

Duke Realty Corp. DRE is scheduled to report third-quarter 2020 earnings on Oct 28, after the market closes. The company’s results will likely reflect year-over-year growth in its funds from operations (FFO) per share.

In the last reported quarter, this industrial real estate investment trust (REIT) posted a positive surprise in terms of FFO per share. Results reflected rent growth on new and renewal leases, higher in-service occupancy and leasing of new developments.

Over the preceding four quarters, the company beat the Zacks Consensus Estimate on one occasion, met estimates in the other two and missed in another, the average negative surprise being 0.75%. 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 and EPS Surprise

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

Let’s see how things have shaped up prior to the third-quarter earnings release.

Factors at Play

The industrial real estate category has been one of the most resilient ones amid the coronavirus pandemic. The social-distancing requirements have particularly prompted order of more goods online. Moreover, apart from e-retail, companies are making strategic moves to boost their supply-chain efficiencies, propelling demand for logistics infrastructure and efficient distribution networks. In fact, there is a drive to achieve resilience across the entire supply chain, which is translating into greater demand for industrial real estates.

Per a report from Cushman & Wakefield CWK, despite the pandemic, the industrial real estate market has been on its growth trajectory backed by tailwinds, including the e-commerce boom. There has been absorption of 62.1 million square feet (msf) of space in the third quarter, marking the strongest quarter so far this year, while new leasing activity exceeded 100 msf for 19 straight quarters, and reached 155.2 msf. This reflects the rise in digital sales, bringing e-commerce leasing together with third-party logistics providers, which helped warehouses/distribution spaces.  

Tighter market conditions and solid demand supported rent growth during the September-end quarter, with U.S. industrial asking rents increasing 2% year over year to $6.63 per square foot. While the U.S. industrial vacancy rate in the quarter came in at 5.3%, reflecting a slight increase, vacancy rates have been low (below 3%) in the tightest markets. In addition, the current construction industrial pipeline has reached a new record high for the market to 340.9 msf.

Duke Realty’s capacity to bank on this favorable trend is likely to have helped the company witness active leasing and healthy rent levels across a number of properties during the July-September quarter. Its diversified portfolio of roughly 156 million rentable square feet, positioned from coastal ports to thriving inland hubs, is likely to have witnessed solid demand from e-commerce and traditional distribution customers for the company’s industrial properties.

Moreover, per its Sep 16 presentation, the pace of rent collections for Duke Realty, including September, has increased each month since the initial days of the pandemic. Also, the company noted that there have been no issues in California where eviction moratoriums are in place.

Through Sep 14, the company collected 97.3%, 99.4% and 98.7% of the original contractual July, August and September rents, respectively. Combined collections and deferrals totaled 99.9% for July, 99.8% for August and 99% for September. Furthermore, the company noted that its deferred rents total less than 1% of annualized gross billings. The company is also witnessing strong collections of deferred amounts under revised billing schedules.

Amid these, the Zacks Consensus Estimate for third-quarter FFO per share is pegged at 39 cents, calling for a year-over-year improvement of 5.4%.

Nonetheless, though industrial real estate fundamentals seemed more resilient than other asset categories, are not immune. The current slowdown in the economy is likely to have affected demand for space in some markets in the quarter to be reported. As such, the Zacks Consensus Estimate of FFO per share for the third quarter remained unchanged over the past 30 days.

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.

Duke Realty currently carries a Zacks Rank of 2 and has an Earnings ESP of 0.00%.

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:

EastGroup Properties, Inc. EGP, slated to release third-quarter earnings on Oct 27, has an Earnings ESP of +0.80% and carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Storage Affiliates Trust NSA, scheduled to report quarterly numbers on Nov 5, currently has an Earnings ESP of +2.44% and carries a Zacks Rank of 2.

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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Duke Realty Corporation (DRE) : Free Stock Analysis Report
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