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Duke Realty's (DRE) Q3 FFO Meets Estimates, Dividend Up

Moumita C. Chattopadhyay

Duke Realty Corporation’s DRE third-quarter 2019 core funds from operations (FFO) per share of 37 cents came in line with the Zacks Consensus Estimate. Moreover, the bottom line increased from the year-ago quarter’s reported figure of 35 cents.

Results indicate overall improved operations and increased investments in new industrial properties. The company has also raised its core FFO per share guidance for the year and announced a hike in the quarterly dividend.

Rental and related revenues of $215.4 million increased 9.4% on a year-over-year basis. However, the figure narrowly missed the Zacks Consensus Estimate of $215.9 million.

Quarter in Detail

Duke Realty leased 7 million square feet of space during the September-end quarter. Tenant retention was 80.4%. Moreover, the company registered same-property net operating income (NOI) growth of 2.8% year over year. In fact, Duke Realty reported overall cash and annualized net effective rent growth on new and renewal leases of 13.7% and 26.8%, respectively, for the quarter.

Notably, same-property NOI for third-quarter 2019 bears the negative impact of a previously-announced tenant bankruptcy as well as relocation of a tenant from two of the company’s current properties to one of its newly-completed build-to-suit developments.

As of Sep 30, 2019, the company’s total portfolio, including properties under development, was 93.9% leased, up 50 basis points (bps) from the prior-quarter end, and 20 bps from the prior-year period end. In-service portfolio was 96.2% leased as of Sep 30, 2019, up from 95.4% leased at Jun 30, 2019 but down from 96.8% at Sep 30, 2018.

Notably, during the third quarter, the company started five development projects aggregating 1.9 million square feet, with estimated costs of $203 million. Moreover, six projects totaling 1.3 million square feet, which were 92% leased in total, were placed in service.

Further, during the quarter, the company acquired a 252,000 square foot project in South Florida, which was fully leased. The company’s building dispositions totaled $280 million in the third quarter.

Duke Realty exited third-quarter 2019 with $121.2 million of cash and cash equivalents, up from $17.9 million as of Dec 31, 2018.

2019 Guidance

Duke Realty has upped its core FFO per share guidance to $1.42-$1.46 for 2019 from the prior estimate of $1.41-$1.45. This was backed by the company’s efficiency in driving strong rental rate growth as well as lease-up of its speculative developments at better rental rates. The Zacks Consensus Estimate for the same is currently pinned at $1.43.

The company revised estimates for same-property NOI growth to 4.4-4.8% from 4-5%. The guidance for acquisitions of properties has been raised to $175-$225 million from the prior guidance of $100-$200 million. The projection for building dispositions is revised to $450-$500 million from the previous outlook of $350-$550 million.

Dividend Hike

Concurrent with its earnings release, Duke Realty announced quarterly cash dividend on common stock of 23.50 cents per share, denoting a 9.3% increase from the prior quarter payout. The dividend for the third quarter will be paid out on Nov 29 to shareholders on record as of Nov 14, 2019.

Our Viewpoint

We are encouraged with the year-over-year improved performance of Duke Realty. Also, the dividend hike brings in good news for its shareholders. Notably, the industrial real estate market is currently enjoying elevated demand for logistics infrastructure amid stable economy and e-commerce boom. Given Duke Realty’s solid operating platform and balance-sheet strength, it is well poised to capitalize on this trend.

The company is focusing on building a superior portfolio through acquisitions and development, on a speculative and build-to-suit basis, in high-barrier markets with solid growth potential. Nevertheless, with rising supply of industrial real estate space, scope for robust rent and occupancy growth is likely to be limited in the upcoming period.

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.

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


We, now, look forward to the earnings releases of other REITs like Realty Income Corp. O, Outfront Media Inc. OUT and Host Hotels & Resorts, Inc. HST, all of which are slated to report their quarterly numbers next week.

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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