Ushering in good news for shareholders of Duke Realty Corp. (DRE - Free Report) , Moody's Investors Service recently announced upgrade of the company’s senior unsecured ratings to Baa1 from Baa2. Moreover, the outlook has been changed to stable from positive.
Per the rating agency, this move highlights Duke Realty's improved operating metrics as well as lower debt metrics, subsequent to Moody's change in the outlook to positive in Jan 2016. The rating agency also acknowledged the REIT’s suitably situated portfolio of industrial assets that would leverage on the growing demand for premium logistic facilities amid limited growth in supply.
Further, the rating agency expects Duke Realty to consistently generate solid earnings with same-store growth opportunities and development and keep its conservative capital structure stance backed by modest debt levels. This is reflected by the company’s stable outlook.
The rating upgrade enhances its creditworthiness in the market and is likely to boost investors’ confidence in the stock. In fact, such moves provide companies an opportunity to enjoy reduced costs on debts and better access to capital.
Last month, Duke Realty reported third-quarter 2016 core funds from operations (“FFO”) per share of 31 cents, which was a penny above the Zacks Consensus Estimate. The quarter witnessed in-service occupancy reaching record level of 97.3%. The company also declared a 5.6% hike in its quarterly dividend payout.
Going forward, Duke Realty’s strategically located high-quality properties, along with a leveraged local presence, are encouraging. Initiatives to increase exposure in industrial assets and presence of healthcare assets augur well for long-term growth.
Moreover, the company completed substantial disposition of office property during the third quarter and remains on track to dispose additional suburban office assets in the fourth quarter and in the next year and finally exit this asset category.
However, operational risks related to large development pipeline, near-term dilutive impact of continued divestiture and any further rise in the interest rates are plausible concerns.
Duke Realty currently has a Zacks Rank #2 (Buy). Investors interested in the REIT industry can also consider other stocks like Mack-Cali Realty Corp. (CLI - Free Report) , Prologis, Inc. (PLD - Free Report) and Preferred Apartment Communities, Inc. (APTS - Free Report) . Each of these stocks has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For Mack-Cali, the Zacks Consensus Estimate for FFO per share increased 2.4% to $2.16 for 2016 and climbed 4.5% to $2.32 for 2017, over the past two months.
Prologis has long-term expected growth rate of 7.2% against the industry average of 5.8%.
Preferred Apartment Communities has a four-quarter average positive earnings surprise of 4.64%.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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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