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Duke Realty (DRE) Q1 FFO Beats Estimates on Higher Revenues

Zacks Equity Research

Duke Realty Corporation’s DRE first-quarter 2019 core funds from operations (FFO) per share of 33 cents surpassed the Zacks Consensus Estimate of 32 cents. Moreover, the figure came in ahead of the year-ago quarter’s reported tally of 30 cents.

Results indicate overall improved operations as well as increased investments in new industrial properties.

Rental and related revenues of $210 million in the reported quarter improved 8.5% on a year-over-year basis. The figure also exceeded the Zacks Consensus Estimate of $205.9 million.

Quarter in Detail

Duke Realty leased around 2.8 million square feet of space during the March-end quarter. Tenant retention in the quarter was 82.7%. Moreover, the company registered same-property net operating income growth of 7.2% year over year. In fact, Duke Realty reported overall cash and annualized net effective rent growth related to new, and renewal leases of 9% and 23.4%, respectively.

As of Mar 31, 2019, the company’s total occupancy, including properties under development, was 93%, down 8 basis points (bps) from the prior-quarter end. In-service occupancy as of the same date was 95.5%, down 80 bps from the year-earlier quarter’s reported figure.

Notably, during the first quarter, the company initiated five development projects, with estimated costs of $169 million. As of Mar 31, 2019, the company’s development pipeline, with projected costs of $765 million, was 52% leased.

Further, during the quarter, the company expanded its presence in high-barrier markets through the acquisition of a 228,000-square-foot Class A property in Seattle. It also acquired a newly-developed 349,000-square-foot property in the Lehigh Valley of Pennsylvania. The properties were 72% leased on a combined basis.

Duke Realty exited first-quarter 2019, with $15.3 million of cash and cash equivalents, down from $17.9 million as of Dec 31, 2018.

2019 Guidance

Duke Realty has increased its guidance for core FFO per share to $1.39-$1.45 for 2019 compared with the prior estimate of $1.37-$1.43. The Zacks Consensus Estimate for the same is currently pegged at $1.39.

The company revised its estimate for same-property NOI growth to 3.5-5% from 3.25-4.75%, backed by solid rental rate increases. The guidance for acquisitions of properties is $100-$300 million, and dispositions of non-strategic properties is projected at $350-$550 million. Moreover, the company expects $600-$800 million of development starts.

Dividend Update

Concurrent with its earnings release, Duke Realty announced a quarterly cash dividend on common stock of 21.50 cents per share, denoting 86 cents per share on an annualized basis. The dividend for the first quarter will be paid on May 31 to shareholders of record as of May 16, 2019.

Our Viewpoint

We are encouraged with the year-over-year improved performance of Duke Realty during the January-March period. Notably, the industrial real estate market is currently enjoying elevated demand for logistics infrastructure amid healthy economy and e-commerce boom. Given Duke
Realty’s solid capacity, the company remains well poised to capitalize on this trend.

The company has been enhancing its portfolio mix through continued divestitures. While such efforts are a strategic fit for the long term, the near-term dilutive effect might drag its quarterly results and dampen near-term profitability. Also, with rising supply of industrial real estate space, there is lesser scope for robust rent and occupancy growth in the near term.

Duke Realty Corporation Price, Consensus and EPS Surprise

Duke Realty Corporation Price, Consensus and EPS Surprise | Duke Realty Corporation Quote

 

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

We now look forward to the earnings releases of other REITs like Vornado Realty Trust VNO, UDR Inc. UDR and Outfront Media OUT.

Vornado Realty Trust will release its quarterly figures on Apr 29, UDR on Apr 30 and Outfront Media is scheduled to report on May 7.

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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