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Analyst Blog

On Jun 13, 2014, we issued an updated research report on Duke Realty Corporation (DRE - Analyst Report), the Indianapolis, IN-based equity real estate investment trust (REIT).

Duke Realty’s strong development platform positions it to explore new growth opportunities in a better way. In first-quarter 2014, the company initiated five wholly owned new development projects. Given its operational strength, we believe that the company can continue its development activities going forward. Moreover, the availability of land banks in strategically important locations augurs well for Duke Realty’s development activities.

On Apr 30, Duke Realty reported its first-quarter 2014 core funds from operations (FFO) of 28 cents per share, which was in line with the Zacks Consensus Estimate. The reported figure was also up 7.7% from the prior-year quarter. Results in the quarter were mainly aided by a rise in revenues, partly offset by higher expenses.

Of late, the company has been focusing more on scaling down its suburban office assets to bolster its bulk industrial business. We expect these portfolio repositioning efforts to boost Duke Realty’s internal growth metrics in the near future.

However, the company’s significant development pipeline increases its operational risks, thereby exposing it to rising construction costs, entitlement delays and lease-up risks. In addition, a rise in interest rates is anticipated in the long run, which would raise Duke Realty’s interest expense.
 
Over the last 30 days, the Zacks Consensus Estimate for 2014 and 2015 FFO per share increased by a cent each to $1.16 and $1.23, respectively. The stock currently has a Zacks Rank #3 (Hold).

Some better-ranked equity REITs include The GEO Group, Inc. (GEO - Snapshot Report), Terreno Realty Corp. (TRNO - Snapshot Report) and Aviv REIT, Inc. (AVIV - Snapshot Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.

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