Rating Affirmation at Duke Realty - Analyst Blog

Ushering in good news for the shareholders of Duke Realty Corp. DRE, Moody's Investors Service, the rating arm of Moody's Corporation MCO, announced the affirmation of Baa2 senior unsecured and Baa3 preferred ratings of Duke Realty with a stable outlook.

The rating affirmation of Duke Realty is encouraging. In fact, this plays a major role in preserving investor confidence in the stock and its creditworthiness in the market. A sound liquidity and modest progress in credit metrics, aided by solid demand for leasing for its industrial markets, are reflected in Duke Realty's Baa2 senior unsecured debt rating.

Moreover, this real estate investment trust's (REIT) well-diversified tenant base and a proven track record support its current rating. However, though its fixed charge coverage is improving, it remains low and its leverage level is somewhat higher for the current rating grade.

As a matter of fact, Duke Realty has made concerted efforts to lower its suburban office assets as the fundamentals of this market remain weak. On the other side, the company is focused on enhancing its bulk industrial properties and reached its goal of 60% for this segment's investment. As a result, the rating agency opines that the move would substantially lower volatility in cash flows.

Furthermore, the rating agency remains optimistic about Duke Realty and expects it to lower its leverage level and improve fixed coverage with its new developments coming in service as well as leasing of vacant space. This is reflected in the stable outlook provided by the rating agency.

Notably, Duke Realty reported a positive earnings surprise of 7.4% in fourth-quarter 2013. Aided by better–than-expected revenues and higher net operating income, the company's core FFO (funds from operations) came in at 29 cents per share.

Duke Realty currently holds a Zacks Rank #3 (Hold). Investors interested in the REIT industry may also consider stocks like Cousins Properties Inc. CUZ, Omega Healthcare Investors Inc. OHI and Public Storage PSA. All these stocks currently have a Zacks Rank #2 (Buy).
 

Note: 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.