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Don't Sell Duke Realty (DRE) Stock Now -- Here's Why

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Duke Realty Corporation is well positioned to benefit from the escalating demand for infrastructure and efficient distribution networks amid an e-commerce boom. However, in order to benefit from this pro-business environment, the company is undertaking numerous development projects which could increase its operational risks by exposing it to rising construction costs, entitlement delays and lease-up risks.
 
Shares of Duke Realty have outperformed the industry it belongs to, year to date.  The company’s shares have gained 11.2% compared with 6.2% growth registered by the industry. Also, its full-year 2017 funds from operations (FFO) per share estimate moved 0.8% upward to $1.22 in a month’s time.



The industrial real estate industry has been witnessing elevated demand for modern, bulk distribution properties and warehouses. This demand is stemming from growth in industries and companies opting for consolidation of operations, in order to improve supply chain efficiencies. This is indicated by the quick lease up and high occupancy rates of these industrial properties.   

In fact, Duke Realty recently leased 33 Logistics Park 1611, a bulk warehouse, to a leading logistics company in the nation. This property was delivered by the company in early July. It also leased 27,044 square feet of space in TransDulles Center 22815 to Legacy Scenic & Productions.
 
Further, Duke Realty’s portfolio is well located in major industrial hubs. Such prime locations help in driving solid demand for its industrial properties.

In addition, the company announced that it has started the construction of a spec industrial building in 33 Logistic Park, in a bid to provide a modern and up-to-date industrial space. These efforts to enhance its portfolio enable the company to capitalize on the increasing demand.

The company’s balance sheet and liquidity position should keep supporting its construction plans.

Duke Realty has been aiming at simplifying its business model and turn it into a leading domestic pure-play industrial REIT. It is continuously disposing its suburban office assets and medical office business (MOB). In line with this, the company inked a deal with a subsidiary of Healthcare Trust of America, Inc., to sell its MOB portfolio for $2.8 billion in May 2017.  

While the above discussed efforts to enhance its portfolio mix are a strategic fit for the long term, the near-term dilutive effect cannot be bypassed. Such short-term impact tends to drag the company’s quarterly results and hurt its profitability.

Duke Realty currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the REIT space include Seritage Growth Properties (SRG - Free Report) , Getty Realty Corporation (GTY - Free Report) and Communications Sales & Leasing, Inc. (UNIT - Free Report) . While Seritage sports a Zacks Rank #1 (Strong Buy), Getty Realty and Communications Sales & Leasing carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Seritage’s 2017 FFO per share estimates inched up 0.5% to $2.01 in a month’s time.

Getty Realty’s FFO per share estimates for 2017 moved up 7.8% to $1.94 over the past 60 days.

Communications Sales & Leasing’s 2017 FFO per share estimates climbed 14.4% to $2.54 in a month’s time.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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.

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