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

Duke Realty Corp. DRE is well-poised to benefit from the increase in demand for its strategically located high-quality industrial real estate properties. Also, its expansionary efforts and a strong balance-sheet position bode well.

The demand for industrial real estate space is escalating given the growth in industries, an e-commerce boom and companies’ endeavors to improve their supply-chain efficiencies. Duke Realty’s portfolio of modern and high-quality logistics facilities makes it well-poised to capitalize on this favorable industrial real estate market fundamentals.

Moreover, DRE has been witnessing a healthy operating performance, as evident from its solid leasing activities. During the second quarter, it leased 9.9 million square feet of space. Also, tenant retention in the quarter was 78.1%, and 98.9% after considering the immediate backfills. With strong demand for its properties, leasing momentum is likely to remain strong in the near term.

Further, to enhance its portfolio, Duke Realty is focusing on acquisitions and developments in strategic markets. Duke Realty’s second-quarter 2022 capital transactions amounted to $412 million for development starts (expected costs), $56 million in building acquisitions and $34 million in building dispositions. Also, it has a robust development pipeline, enabling it to enhance its prospects in the Tier-1 markets.

Duke Realty maintains a robust balance sheet position. It ended the June quarter with $44.2 million of cash and cash equivalents and has no significant debt maturities until 2026. It also enjoys investment-grade credit ratings, which enables it to borrow at a favorable rate. This gives Duke Realty enough financial flexibility and facilitates its development activities.

Moreover, the second quarter has been notable for Duke Realty. It entered into a definitive merger agreement with Prologis whereby the latter will acquire the former in an all-stock transaction valued at $26 billion, including the assumption of debt. The transaction is expected to be completed in the fourth quarter of 2022, subject to shareholders' approval of both the companies and other customary closing conditions.

Per the agreement, Duke Realty shareholders will receive 0.475x of a Prologis share for each Duke Realty share owned. DRE’s shareholders are likely to benefit from the combined portfolio’s upside potential and its capacity to deliver meaningful growth.  

Shares of Duke Realty have gained 20.1% in the past three months against the industry’s fall of 1.4%.

Image Source: Zacks Investment Research

However, a development boom in several markets may increase competition and curb pricing power. Also, with a rising supply, vacancy levels might experience some pressure in the upcoming quarters.

In addition, its huge development pipeline exposes it to various operational risks such as construction cost overruns and lease-up risks.

Analysts seem bearish about this Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s third-quarter 2022 funds from operations (FFO) per share does not indicate a favorable outlook for the company as it has been unchanged over the past month.

Stocks to Consider

Some better-ranked stocks from the REIT sector are Extra Space Storage EXR, Host Hotels & Resorts HST and EastGroup Properties EGP.

The Zacks Consensus Estimate for Extra Space Storage’s ongoing year’s FFO per share has been raised marginally over the past week to $8.46. EXR sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Host Hotels & Resorts’ 2022 FFO per share has moved 3.6% upward in the past month to $1.73. HST currently holds a Zacks Rank of 2.

The Zacks Consensus Estimate for EastGroup Properties’ current-year FFO per share has moved 1.3% northward in the past month to $6.92. EGP carries a Zacks Rank #2 at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.