On Feb 12, 2013, we reiterated our long-term recommendation on
Duke Realty Corporation
) at Neutral. This reflects the company's strong leasing
activity, healthy balance sheet with adequate liquidity and
strategic efforts to reposition its portfolio. However,
short-term revenue headwinds arising out of the repositioning
moves and reduced income from service operations remain matters
Duke Realty's expert local operating teams and strategically
located, high-quality properties helped it realize superior
performances in 2012. It achieved its highest in-service
occupancy in more than a decade (93.0% as of Dec 31, up 50 basis
points (bps) for the quarter and 230 bps from the year-end
This reflected great leasing activity and limited speculative
development starts. Going forward, we believe that its efficient
operating platform will help post such improved results and this,
in turn, would help boost its financial results.
Moreover, in 2012, in agreement with its repositioning strategy,
the company began new development starts with $520 million,
acquired over $800 million of industrial and medical office
properties, as well as completed $153 million in dispositions. We
believe that this portfolio repositioning is likely to improve
the internal growth metrics, enabling the company to emerge
stronger once the real estate markets fully recover.
In addition, the medical office business continues to benefit
from the ongoing structural changes in the industry and all
healthcare providers are adapting to the Affordable Care Act
implementation. As such, Duke Realty is experiencing strong
demand in its medical office business and this is expected to
help augment its top line going forward.
However, Duke Realty's fourth quarter 2012 core FFO of 27 cents
per share was in line with the Zacks Consensus Estimate but fell
3 cents from the prior-year quarter, reflecting lower third party
construction fees and short-term dilution effect arising out of
the repositioning moves. We believe that the short-term revenue
headwinds will limit the stock's upside potential to some extent.
Following the release of the fourth quarter and full year 2012
results, the Zacks Consensus Estimate for full year 2013 has gone
down 0.9% to $1.07 per share with 2 estimates going north and 3
Also, the Zacks Consensus Estimate for full year 2014 fell 1.8%
to $1.12 per share as 2 estimates were revised upward while one
estimate moved down. With the Zacks Consensus Estimates going
down for both full year 2013 and 2014, the company now has a
Zacks Rank #4 (Sell).
Other Stocks to Consider
REITs that are currently performing well include
Terreno Realty Corp.
), having a Zacks Rank #1 (Strong Buy) as well as
Hersha Hospitality Trust
Medical Properties Trust Inc.
), both carrying a Zacks Rank #2 (Buy).
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.
DUKE REALTY CP (DRE): Free Stock Analysis
HERSHA HOSPTLY (HT): Free Stock Analysis
MEDICAL PPTYS (MPW): Free Stock Analysis
TERRENO REALTY (TRNO): Free Stock Analysis
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