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Key Factors to Impact Duke Realty (DRE) This Earnings Season

Duke Realty Corp. DRE is scheduled to report fourth-quarter 2021 and full-year earnings on Jan 26, after the market closes. DRE’s results are likely to reflect growth in both its funds from operations (FFO) per share and revenues from the respective year-ago quarter’s reported figures.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a surprise of 4.55% in terms of FFO per share. Results reflected an improvement in rental-rate growth and new developments being leased.

Over the preceding four quarters, Duke Realty’s earnings beat the Zacks Consensus Estimate on two occasions and matched the same on the remaining two. It has a trailing four-quarter surprise of 1.72%, on average. The graph below depicts this surprise history:

Duke Realty Corporation Price and EPS Surprise

Duke Realty Corporation price-eps-surprise | Duke Realty Corporation Quote

Let’s see how things have shaped up prior to this announcement.

Factors at Play

The U.S. industrial real estate market is still firing on all cylinders, having ended the last year with record demand, which surpassed supply for the fourth quarter consecutively, per a Cushman & Wakefield CWK report.

There was a net absorption of 145.2 million square feet (msf) of space in the December-end quarter, marking the second-highest amount of space absorbed in a single quarter reported by CWK. The tally is 47.9% higher than 99.7 msf reported in the fourth quarter of 2020.

With this, the 2021 absorption reached 532.6 msf, reflecting the maximum absorption recorded in a single year since the start of record-keeping in 1995. In 2021, new leasing activity also reached a record of 879.9 msf, up 25% from 703 msf reported in 2020.

The U.S. industrial vacancy rate came in at 3.7% in 2021, 220 basis points less than the 10-year historical average of 5.9%. It also marks an all-time record low. Continued tight market conditions, aggressive competition and solid demand aided rent growth during the December-end quarter, up 9.5% year over year to $7.39 per square foot. In 2021, rent growth steadily accelerated in each quarter.

Duke Realty is well poised to bank on favorable fundamentals of the industrial real estate market owing to its solid operating platform and a robust scale. DRE, which enjoys a strong footing in this asset category, is witnessing solid demand for the industrial real estate as reflected by the leasing levels of the properties.

During the fourth quarter, Duke Realty secured a lease contract at TransDulles Centre 22633 for 24,050 square feet of space at 22633 Davis Drive in Sterling, VA, which enabled DRE’s Washington, D.C. portfolio to achieve 100% occupancy. DRE secured a lease with a transportation company for its newest facility in Camp Creek Business Center.

In addition, DRE clinched a lease contract with Allios for space at Pinebrooke Business Center 10350 in Tampa, FL. The Southern California office of Duke Realty secured a long-term lease agreement for its 1,203,449-square-foot speculative development in submarket of Inland Empire East.

Duke Realty’s expansion efforts through acquisitions and developments in recent years are likely to have boosted the top line during the to-be-reported quarter. In November, DRE announced the acquisition of a 63,265-square-foot distribution facility positioned on 3.2 acres at 468 South Humane Way in Pomona, CA. Duke Realty also announced the acquisition of a 53-acre site in Newark, NJ, less than a mile from the Port of New York/New Jersey, Liberty International Airport and the I-95 New Jersey Turnpike in the same month.

The Zacks Consensus Estimate of $262.4 million for fourth-quarter revenues indicates growth of 5.51% from the prior-year quarter’s reported number.

However, with the asset category being attractive in current challenging times, there is a development boom in some markets. The United States delivered 355.6 msf of new industrial products in 2021. This is almost close to 355.8 msf reported in 2020, which is a record, per the report from CWK.

In the second half of the year, there was a pick-up in completions from the first two quarters’ levels, aggregating 103.9 msf in the third quarter and 100.9 msf in the fourth quarter. This high supply is likely to have intensified competition and affected pricing power during the December-end quarter.

Prior to the quarterly earnings release, there is lack of any solid catalyst to make investors optimistic about the stock. The Zacks Consensus Estimate for the fourth quarter’s FFO per share has been unchanged at 45 cents. However, it suggests a 9.76% improvement from the prior-year quarter’s reported number.

For the full year, the Zacks Consensus Estimate for FFO per share has remained unchanged to $1.74 over the past month. The figure indicates an 11.2% increase year over year on revenues of $1.03 billion.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict an FFO beat for Duke Realty this time around. The right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher —increases the odds of an FFO beat. However that is not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Duke Realty has an Earnings ESP of 0.00%.

Zacks Rank: Duke Realty currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are some stocks like Highwoods Properties HIW and EastGroup Properties EGP worth considering from the REIT sector, as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:

Highwoods Properties, slated to release fourth-quarter earnings on Feb 8, has an Earnings ESP of +2.67% and a Zacks Rank of 3 at present.

EastGroup Properties, scheduled to report quarterly figures on Feb 8, has an Earnings ESP of +0.32% and a Zacks Rank #2, currently.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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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Highwoods Properties, Inc. (HIW): Free Stock Analysis Report
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Cushman & Wakefield PLC (CWK): Free Stock Analysis Report
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