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Duke Realty (DRE) Prices Senior Unsecured Notes Worth $450M

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Duke Realty Corporation (DRE - Free Report) has announced the pricing of its 4% senior unsecured notes through the company’s operating partnership. The $450-million notes are priced at 98.26% of the principal amount and carry a yield of 4.132%.

The notes are due on Sep 15, 2028. The offering, subject to fulfillment of customary closing conditions, is expected to close on Sep 11, 2018.

The company plans to utilize net proceeds of this offering to retire secured debt worth $224 million, of a total of $272 million maturing in 2019. Further, amounts will be channelized to funds its development pipeline, repay borrowings under the company’s revolving credit facility and for general corporate purposes.

By paying down its debt obligations and credit facility, this offering is anticipated to provide flexibility to the company. In addition, it reflects the company’s focus to address its financial obligations in an efficient way. In fact, during second-quarter 2018, the company used part of the MOB sale proceeds to reduce debt balance. These efforts will likely enhance its leverage metrics.

In addition, Duke Realty’s development projects have an estimated stabilized cost of $985.2 million. Hence, efforts to fund these projects bode well, as new developments are expected to drive long-term growth. However, a large development pipeline increases operational risks by exposing it to rising construction costs, entitlement delays and lease-up risks. In fact, rising steel prices and labor cost may dent development yields.

Moreover, since unsecured notes can be borrowed at lower rates, this new debt will result in lower funding cost. This is likely to boost Duke Realty’s balance sheet that maintains a credit rating of Baa1 from Moody’s.

Duke Realty currently carries a Zacks Rank #3 (Hold).

Over the past six months, shares of the company have outperformed the industry it belongs to. In fact, its shares have rallied 12.2% compared with the industry’s gain of 10.9% during the same time frame.


 

Also, the Zacks Consensus Estimate for current-year funds from operations (FFO) per share has been revised marginally upward in a month’s time.

Key Picks

Better-ranked stocks from the REIT space include VICI Properties (VICI - Free Report) , Park Hotels and Resorts, Inc. (PK - Free Report) and PS Business Parks, Inc. (PSB - Free Report) . All three stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

VICI Properties’ Zacks Consensus Estimate for 2018 FFO per share has been revised upward by a cent over the past 60 days. Its shares have gained 6.7% in the past six months.

Park Hotels and Resorts’ FFO per share estimates for 2018 witnessed 1.3% upward revision in 60 days’ time. Its shares have appreciated 26.5% over the past six months.

PS Business Parks’ FFO per share estimates for the current year moved up marginally in the past 30 days to $6.39. The stock has rallied 14.7% in six months’ time.

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