Back to top

Image: Shutterstock

Here's Why You Should Hold on to Duke Realty (DRE) Stock Now

Read MoreHide Full Article

The industrial asset class has grabbed the limelight for showing resilience amid the coronavirus pandemic with low vacancy rates, high asking rents and robust rent collections. In fact, amid 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 shooting up. This is aiding the industrial real estate market to prosper.

Apart from fast adoption of e-commerce, logistics real estate is anticipated to benefit from an increase in inventory levels post the global health crisis, offering possibilities to industrial landlords including Duke Realty Corp. , Prologis (PLD - Free Report) , Terreno Realty Corporation (TRNO - Free Report) and Rexford Industrial Realty, Inc. (REXR - Free Report) to enjoy a favorable market environment.

Particularly, Duke Realty — which has emerged as a domestic pure-play industrial real estate investment trust — is well positioned to bank on the favorable environment on the back of its solid operating platform and robust scale. The company — which enjoys a strong footing in this asset category — is witnessing solid demand for industrial real estates, as reflected by the leasing and rent collection levels of the properties.

It registered same-property net operating income growth of 6.3% year over year for first-quarter 2021. This upside was backed by increased occupancy, rental rate growth and the expiration of free rent periods. Duke Realty reported overall cash and annualized net effective rent growth on new and renewal leases of 11.4% and 26.2%, respectively, for the first quarter.

The company is making efforts to improve its portfolio on the back of development and acquisitions in strategic markets, given solid growth potential. For 2021, the company estimates $300-$500 million of property acquisitions focused on coastal in-fill markets. Development starts for 2021 are now projected within $950 million to $1.15 billion compared with the initial guided range of $700-$900 million.

Moreover, its land inventory is 88% coastal Tier 1 markets, poising it well for future growth. In fact, with a robust pipeline of development — both build-to-suit and speculative — as well as an active pipeline of build-to-suit prospects, Duke Realty is well poised to enhance presence in Tier 1 markets.

Further, it enjoys a strong balance sheet, ample liquidity and easy access to capital. The company focuses on disciplined use of the $1.2-billion credit facility and maintains a high unencumbered asset pool. Particularly, in first-quarter 2021, the company renewed the $1.2-billion line of credit, reducing spread by 10 bps, and added a sustainability-pricing metric. It has no significant debt maturities until 2023 and its leverage metrics looks healthy. Given balance-sheet strength and prudent financial management, the company is well poised to bank on growth opportunities.

Also, shares of this Zacks Rank #3 (Hold) company have gained 12.2% over the past three months, outperforming the industry’s 8.5% growth. Moreover, the recent trends in estimate revisions for 2021 funds from operations (FFO) per share indicates a favorable outlook for the company. The Zacks Consensus Estimate for 2021 FFO per share has been revised marginally upward to 1.68 over the past month.



You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, with the asset category being attractive in these challenging times, there is a development boom in a number of markets. This high supply is likely to fuel competition and curb pricing power. Particularly, new supply is likely to put pressure on vacancy level, which might shoot up to some extent in the upcoming quarters.

Furthermore, recovery in the industrial market is ongoing for long and growth of e-commerce sales is likely to stabilize to some extent in the upcoming quarters. Therefore, any robust performance is unlikely in the near term. In fact, with comparatively modest demand, coupled with new supply, the pace of overall growth in rent will likely be moderate in the upcoming period.

Industrial real estate fundamentals seem more resilient than other asset categories but are not immune. There is continued uncertainty regarding the pandemic across the globe. As such, the pandemic’s adverse impact on the economy might affect demand for space in the days to come.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.

Click here for the 4 trades >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Prologis, Inc. (PLD) - free report >>

Terreno Realty Corporation (TRNO) - free report >>

Rexford Industrial Realty, Inc. (REXR) - free report >>

Published in