The industrial asset category is showing resilience amid the coronavirus pandemic with low vacancy rates, high-asking rents and robust rent collections. There has been a notable increase in e-commerce’s share of total retail sales, spurring demand for warehouse and distribution space.
Amid these, adding Duke Realty Corporation (DRE - Free Report) , the domestic, pure-play logistics property REIT, to your portfolio seems a wise idea, given the strength in its fundamentals and solid prospects.
Further, the recent trend in estimate revisions indicates that analysts are bullish on this stock. Over the past 30 days, the Zacks Consensus Estimate for funds from operations (FFO) per share for 2020 and 2021 moved 3.5% and 4.7% upward to $1.49 and $1.56, respectively. The company currently carries a Zacks Rank #2 (Buy).
While shares of Duke Realty have gained 17.8% in the past three months, outperforming its industry rally of 12.4%, there is still room left for further appreciation.
Factors That Make Duke Realty a Solid Pick
Domestic Pure-Play Industrial Real Estate Focus: Amid an e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies, demand for logistics infrastructure and efficient distribution networks has been increasing. Moreover, apart from the fast adoption of e-commerce, the supply-chain disruption caused by the coronavirus pandemic is likely to further spur demand for incremental inventory storage.
This will likely help the industrial real estate market flourish and given Duke Realty’s solid capacity to offer modern, bulk distribution properties, the company remains well poised to bank on this trend.
Acquisitions and Development: The solid demand for industrial real estate has resulted in the company making efforts to enhance its portfolio. During the second quarter, the REIT placed eight new consolidated projects, and one expansion to an existing project, aggregating 3.2 million square feet. These projects were 82% leased in total. Further, the company’s guidance for acquisitions of properties is $50-$250 million for the current year. It is also working with a list of prospective tenants and anticipates more build-to-suit developments to be commenced in the second half of this year.
Healthy Operating Performance: During the second quarter, the company registered same-property net operating income (NOI) growth of 5% year over year on increased occupancy and rental rate growth. Notably, the company has collected or has executed deferral agreements for 99.9% of second-quarter rents and 99.9% of July rents.
Given the healthy demand for industrial properties and Duke Realty’s well-located portfolio, the favorable trend in its operating performance is likely to continue.
FFO Growth: Over the past three to five years, Duke Realty recorded FFO per share growth of 5.3% compared with the industry’s average of 0.73%. Moreover, the FFO per share is expected to be up 3.5% in 2020 and 5% in 2021.
Balance Sheet and Cash Flow Strength: Duke Realty enjoys a strong balance sheet, ample liquidity and easy access to capital. The company’s measures in recent months have helped lower its overall average borrowing rate and near-term debt maturities. Also, it enjoys investment-grade credit rating of BBB+ and Baa1 from Standard & Poor’s and Moody’s, respectively.
Duke Realty’s current cash-flow growth is projected at 9.2%, while the industry’s growth is expected to be 3.4%.
Moreover, the REIT has maintained its dividend rate for the past several quarters.
Superior ROE: Duke Realty’s trailing 12-month return on equity (ROE) highlights its growth potential. The company’s ROE of 7.38% compares favorably with the industry’s 3.32%, refelcting that it is more efficient in using shareholder funds than its peers.
Other Stocks to Consider
Alexander's, Inc. (ALX - Free Report) recorded an upward FFO per share estimate revision of 24% for the current year over the past 60 days. Moreover, this Zacks #2 Ranked stock has appreciated 8.1% over the past three months.
Arbor Realty Trust, Inc. (ABR - Free Report) witnessed 26.3% upward FFO per share estimate revision for the ongoing year in the past two months. This Zacks #2 Ranked stock has gained 43.5% over the past three months.
CareTrust REIT, Inc. (CTRE - Free Report) recorded an upward FFO per share estimate revision of 1.5% for the current year over the past 60 days. The Zacks #2 Ranked stock has rallied 3.3% over the past three months.
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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