Duke Realty Repositions Portfolio - Analyst Blog

Duke Realty Corp. (DRE), a real estate investment trust (REIT), has recently completed transactions worth $967 million to reposition its portfolio. The deal was part of the long-term strategy of the company to restructure its asset base from a primarily suburban office portfolio to a predominantly industrial portfolio.

Duke Realty sold its joint-venture interest in 20 suburban office buildings spanning approximately 3.1 million square feet of space to its existing joint-venture partner CB Richard Ellis Group, Inc. (CBG). Duke Realty had a 20% stake in the joint venture. The properties were valued at $517 million. The company expects to generate net proceeds of $414 million from the asset sale, which would be utilized to fund property acquisitions and repay debt.

In addition, Duke Realty also acquired 51 industrial properties and 5 office buildings in south Florida, spanning 4.9 million square feet of space. The company purchased the assets for $450 million from Premier Commercial Realty, a full-service commercial real estate brokerage firm in Atlanta, Georgia.

The purchase price includes the assumption of $292 million of debt with a weighted average interest rate of 5.68%. The acquisition will offer a dominant market position to Duke Realty in the industrial submarkets of Broward and Palm Beach counties.

With the completion of both the deals, Duke Realty's portfolio would comprise 49% office, 42% industrial, and 9% medical office and other assets. Duke Realty is one of the largest commercial real estate companies in the U.S.

For over 35 years, the company has leveraged its local presence and its integrated platform to drive returns, establishing itself as a premier publicly traded real estate developer in the country.

Duke Realty has exited certain markets in an attempt to concentrate in areas where it already has a strong presence. The company has temporarily closed its operations in some of its newest markets including Austin, San Antonio, Seattle and Newport Beach. The portfolio reshuffle is likely to improve Duke Reality's internal growth metrics and position it to emerge stronger once the real estate markets fully recover.

We maintain our Neutral rating on Duke Realty with a Zacks #3 Rank, which translates into a short-term Hold recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.

 
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