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Key Factors to Impact Duke Realty (DRE) This Earnings Season

Duke Realty Corp. DRE is scheduled to report third-quarter 2021 earnings on Oct 27, after the market closes. The company’s results are likely to reflect year-over-year growth in both its funds from operations (FFO) per share and revenues.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a surprise of 2.33% in terms of FFO per share. Results reflected improved occupancy, rental rate growth and new developments being leased.

Over the preceding four quarters, the company beat the Zacks Consensus Estimate on two occasions, for as many in-line performances. It has a trailing four-quarter surprise of 1.22%, on an average. 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-eps-surprise | Duke Realty Corporation Quote

Factors to Note

The industrial real estate market is still firing on all cylinders with robust demand, rents and pipeline scaling new records. What is encouraging is that demand in the U.S. industrial market outpaced supply for the third quarter in a row, per a report from Cushman & Wakefield CWK.

There was a net absorption of 140.7 million square feet (msf) of space in the September-end quarter, reflecting the most space ever absorbed in a single quarter of any year reported by Cushman & Wakefield. The tally led to the year-to-date 2021 absorption reach 365.9 msf, 98% higher than the prior-year number. Warehouse/distribution space emerged as the strongest secondary property type. For the fourth consecutive quarter, new leasing activity exceeded 200 msf and came in at 207.9 msf. This reflects the surge in digital sales, driving e-commerce leasing, together with third-party logistics providers, which helped warehouses/distribution spaces.

The U.S. industrial vacancy rate came in at 4.1% at the end of third-quarter 2021, shrinking 30 basis points (bps) sequentially and 110 bps year over year. Intense competition for space aided rent growth during the July-September quarter, which increased 8.3% year over year. With rent of $7.18 per square foot during the period in discussion turned out to be another record high rental rate for the U.S. industrial market.

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 period. Its diversified portfolio of roughly 163 million rentable square feet, positioned in 19 major U.S. logistics markets, is anticipated to have witnessed encouraging demand from e-commerce and traditional distribution customers for its industrial properties. As such, the company’s performance is anticipated to have been aided by continued rental rate growth during the quarter under review.

The REIT has been seeing solid demand for its industrial real estates and announced a number of leasing activities in the third quarter. This included securing seven new lease deals and 13 lease renewals, thereby, locking down 305,000 square feet of industrial space. Also, the industrial REIT secured a long-term lease deal with a consumer products company for 61,191 square feet of logistics space in a 221,984-square-foot facility within the Miami 27 Business Park.

Amid stellar demand, Duke Realty is also likely to have progressed well with its development activities, both build-to-suit and speculative ones. Moreover, the company enjoys a strong balance sheet, ample liquidity and easy access to capital. This trend is also anticipated to have continued in the third quarter.

The Zacks Consensus Estimate of $266.72 million for third-quarter revenues indicates growth of 13.3% year on year.

Prior to the quarterly earnings release, there is lack of any solid catalyst to become optimistic on the stock. The Zacks Consensus Estimate for the July-September quarter’s FFO per share remained changed at 44 cents for the quarter. However, it suggests a 10% year-over-year improvement.

What Our Quantitative Model Unveils:

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 #2 (Buy) and has an Earnings ESP of -0.45%.

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:

Public Storage PSA, scheduled to report quarterly numbers on Nov 1, currently has an Earnings ESP of +1.50% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Digital Realty Trust, Inc. DLR, slated to release quarterly numbers on Oct 26, has an Earnings ESP of +1.24% and carries a Zacks Rank of 3, at present.

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

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