It has been about a month since the last earnings report for Duke Realty (DRE). Shares have added about 0.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Duke Realty due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Duke Realty Meets Q1 FFO Estimates, Raises '21 View
Duke Realty’s first-quarter 2021 core FFO per share of 39 cents came in line with the Zacks Consensus Estimate. The figure also increased 18.2% from the year-ago tally of 33 cents.
Results reflect improved occupancy, lower bad debt expense, rental rate growth and new developments being placed into service and leased up.
Rental and related revenues of $258.2 million climbed 18% on a year-over-year basis. The figure also surpassed the Zacks Consensus Estimate of $249.8 million.
Rent collections remained strong, with the company collecting 99.9% of first-quarter and April rents. There is $52,000 residual to be collected under deferral agreements.
Quarter in Detail
Duke Realty leased 7.4 million square feet of space during the March-end quarter. Tenant retention was 85% for the reported quarter and 94.1% after considering immediate backfills.
Moreover, the company registered same-property net operating income (NOI) growth of 6.3%, year over year. This upside was backed by increased occupancy, rental rate growth and the expiration of free rent periods.
Duke Realty reported overall cash and annualized net effective rent growth on new and renewal leases of 11.4% and 26.2%, respectively, during the first quarter.
As of Mar 31, 2021, the company’s total portfolio, including properties under development, was 95.5% leased, shrinking 50 basis points (bps) from the end of the previous quarter, but expanding 120 bps from end of the prior-year quarter. Stabilized in-service portfolio was 98.1% leased as of Mar 31, 2021, flat sequentially and up 90 bps from the prior-year quarter end.
Duke Realty exited first-quarter 2021 with $9 million of cash and cash equivalents, up from $6.3 million as of Dec 31, 2020.
The company issued 723,000 shares during the quarter, reaping $30 million of net proceeds, under its ATM program at an average price of $41.70 per share.
During the January-March period, Duke Realty’s building acquisitions totaled $51 million, while building dispositions aggregated $94 million.
In addition, the company started 11 development projects, with projected costs of $412 million, aggregating 3.8 million square feet, which were 60% pre-leased.
Notably, the company’s $1.4 billion of developments under construction are 65% leased and the projects that are remaining to be leased are mainly located in coastal infill markets.
Duke Realty has revised the 2021 guidance for core FFO per share to $1.65-$1.71 from the $1.62-$1.68 provided earlier. At the mid-point, this projects a 10.5% increase year on year.
On anticipations of solid operational results, the company has revised the guidance for average percentage leased of its stabilized portfolio to 97.2-98.6% compared with the initial band of 96.6-98.6%.
Backed by these factors and along with strong rental rate growth on the recently-executed leases, management revised the same-property NOI growth estimates, on a cash basis, to 4.1-4.9% from 3.6-4.4%.
Property dispositions are projected in the range of $900 million-$1.10 billion compared with the initial outlook of $500-$700 million, while property acquisitions are expected to be $300-$500 million compared with $200-$400 million, focused on coastal in-fill markets.
Development starts for 2021 are now projected at $950 million-$1.15 billion compared with the initial guidance of $700-$900 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Duke Realty has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Duke Realty has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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