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Duke Realty (DRE) Q2 FFO Beats Estimates on Higher Revenues

Zacks Equity Research

Duke Realty Corporation’s DRE second-quarter 2019 core funds from operations (FFO) per share of 36 cents surpassed the Zacks Consensus Estimate of 35 cents. Moreover, the bottom line increased from the year-ago quarter’s reported figure of 33 cents.

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

Rental and related revenues of $213 million increased 10.9% on a year-over-year basis. The figure also exceeded the Zacks Consensus Estimate of $212.5 million.

Quarter in Detail

Duke Realty leased around 7.5 million square feet of space during the June-ended quarter. Tenant retention was 81.7%. Moreover, the company registered same-property net operating income growth of 4.4% year over year. In fact, Duke Realty reported overall cash and annualized net effective rent growth related to new, and renewal leases of 12% and 28.3%, respectively.

As of Jun 30, 2019, the company’s total occupancy, including properties under development, was 98.2%, stable year over year. In-service occupancy as of the same date was 95.4%, down 200 basis points.

Notably, during the second quarter, the company initiated nine development projects, with estimated costs of $395 million.

Further, during the quarter, the company acquired a 110,000 square foot cold storage facility in an in-fill market in Northern California, which was 100% leased.

Duke Realty exited second-quarter 2019 with $8.6 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 $1.41-$1.45 for 2019 from the prior estimate of $1.39-$1.45. The Zacks Consensus Estimate for the same is currently pegged at $1.42.

The company raised estimates for same-property NOI growth to 4-5% from 3.5-5%. The guidance for acquisitions of properties is $100-$200 million.

Dividend Update

Concurrent with its earnings release, Duke Realty announced 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 second quarter will be paid out on Aug 30 to shareholders on record as of Aug 15, 2019.

Our Viewpoint

We are encouraged with the year-over-year improved performance of Duke Realty. 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 dampen 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 price-consensus-eps-surprise-chart | Duke Realty Corporation Quote

Currently, Duke Realty carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Cousins Properties Incorporated CUZ reported second-quarter FFO per share (before TIER transaction costs) of 71 cents, missing the Zacks Consensus Estimate by a whisker. Nonetheless, the bottom line came in higher than the prior-year quarter’s reported figure of 60 cents.

SL Green Realty Corp. SLG reported second-quarter 2019 FFO of $1.82 per share, surpassing the Zacks Consensus Estimate of $1.73. The bottom line includes promote income from the sale of 521 Fifth Avenue of $3.4 million or 4 cents per share. Results also compared favorably with the year-ago quarter figure of $1.69.

Crown Castle International Corp. CCI posted second-quarter adjusted AFFO per share of $1.48, up from the prior-year figure of $1.31. Further, the bottom line outpaced the Zacks Consensus Estimate of $1.43.

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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