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On Sep 30, 2013, we reiterated our long-term Neutral recommendation on Duke Realty Corporation (DRE - Analyst Report). This is based on the company’s strategic portfolio restructuring activity and a strong balance sheet position. Yet, stiff competition, rising interest rates and a volatile office sector remain our plausible concerns.

Why the Reiteration?

Duke Realty primarily strategizes toward growing its investments in premium industrial assets across existing and vibrant new markets, enhancing medical office portfolio and reducing exposure to suburban office assets and other non-strategic properties.

Additionally, with exposure to the healthcare sector, Duke Realty remains less prone to market volatility as the healthcare segment enjoys a steady demand. Moreover, the company has a relatively healthy balance sheet with adequate liquidity.

Moreover, Duke Realty’s second-quarter 2013 core funds from operations (FFO) of 27 cents per share was a cent higher than the year-ago figure and in line with the Zacks Consensus Estimate. This was aided by better rental revenues growth as well as a reduction in general and administrative expenses. Encouragingly, the company raised the lower end of its 2013 core FFO guidance.

However, the weak office market scenario at present and exposure to vulnerable suburban office and industrial assets remain plausible concerns for this Zacks Rank #3 (Hold) stock. In addition, stiff competition from commercial property developers, a large development pipeline and rising interest rates remain headwinds.

Over the last 30 days, the Zacks Consensus Estimate for 2013 FFO per share moved south by a cent to $1.08. On the other hand, the Zacks Consensus Estimate for 2014 FFO per share remained stable at $1.14.

Other Stocks to Consider

Better performing REITs that are worth a look include Sovran Self Storage Inc. (SSS - Snapshot Report), CubeSmart (CUBE - Snapshot Report) and Cousins Properties Inc. (CUZ - Analyst Report). Sovran Self Storage and CubeSmart carry a Zacks Rank #1 (Strong Buy) and Cousins Properties carries a Zacks Rank #2 (Buy).

Note: 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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