Real estate has been holding up better than the stock market. Even rising interest rates are seen as a potential way to cool the rapidly-rising housing market. Other parts of the real estate market have likewise held up well, but have different dynamics that should enable more value to be unlocked ahead.
One such area is in industrial real estate. Most investors can’t or don’t want to own this space directly, so a number of REITs exist to make it easy.
Industrial REIT Prologis (PLD) sees so much value in the space that they’ve made an offer for Duke Realty (DRE). However, Duke has rejected the offer as “insufficient.”
A look at the numbers suggests that’s true. Duke has 159 million rentable square feet of industrial properties in 20 logistics markets. Shares trade at 19 times forward earnings, which soared 214 percent in the last year.
Action to take: Even with shares initially popping on the Prologis offer, Duke shares are still well off their 52-week highs. An offer closer to that range could give investors some modest – but certain – upside in the coming months. Until an offer materializes, the company pays a 2.2 percent dividend.
For traders, the September $65 calls, last going for about $1.45, offer a mid-double-digit return. Traders should look to sell out on any further news that sends shares higher.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.