On Jul 10, 2013, we reiterated our long-term recommendation on
Duke Realty Corporation
) at Neutral. This is based on the company's strong same-property
performance, healthy balance sheet with adequate liquidity and
strategic efforts to reposition its portfolio. However, we remain
concerned about Duke Realty's large development pipeline, which
might elevate its operational risks.
Why the Neutral Stance?
Duke Realty's expert local operating teams and strategically
located high-quality properties helped it deliver a superior
performance in the first-quarter of 2013. The company's
in-service occupancy stood at 92.1% in the quarter. This reflects
great leasing activity and limited speculative development
starts. Moreover, an efficient operating platform is expected to
improve its financials going forward.
Additionally, Duke Realty continues to reposition its portfolio
in an attempt to concentrate in areas where it has a strong
presence. In the first-quarter of 2013, the company invested $139
million in new development starts, acquired over $30 million of
industrial and medical office properties as well as completed
$223 million in dispositions. This is expected to improve the
internal growth metrics, which would enable it to emerge stronger
once the real estate markets recover fully.
However, Duke Realty has a large development pipeline, which
increases operational risks exposing it to rising construction
costs, entitlement delays, and lease-up risk. Moreover, continued
pressure on occupancy and rents, along with Duke Realty's goal to
sell substantial suburban office assets and de-leverage its
balance sheet, are likely to weigh on earnings growth in the
The Zacks Consensus Estimate for 2013 and 2014 remained unchanged
at $1.08 and $1.14 per share, respectively, over the last 60
The Zacks Consensus Estimate for the upcoming quarter is pegged
at 27 cents per share. The earnings ESP (Read:
Zacks Earnings ESP: A Better Method
) for Duke Realty is +3.85% for the second quarter. This, along
with its Zacks Rank #3 (Hold), makes it likely for the company to
report a positive earnings surprise.
Other Stocks to Consider
Some better performing REITs include
Sunstone Hotel Investors Inc
Terreno Realty Corp
Winthrop Realty Trust
). All these carry a Zacks Rank #1 (Strong Buy).
DUKE REALTY CP (DRE): Free Stock Analysis
WINTHROP REALTY (FUR): Free Stock Analysis
SUNSTONE HOTEL (SHO): Free Stock Analysis
TERRENO REALTY (TRNO): Free Stock Analysis
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