Duke Realty (DRE) Surpasses FFO & Revenue Estimates In Q1

Duke Realty Corporation’s (NYSE:DRE) first-quarter 2017 core funds from operations (“FFO”) per share of 32 cents surpassed the Zacks Consensus Estimate of 29 cents and came in 4 cents ahead of the year-ago figure. In-service occupancy reached a record level of 97.7% in the quarter.

Total rental and related revenue for the quarter was $217.9 million, up approximately 8% year over year. This number also surpassed the Zacks Consensus Estimate of $204 million.

Quarter in Detail

Duke Realty leased around 5.5 million square feet of space in the quarter. Its tenant retention for the quarter was 84%. Moreover, the company registered same-property net operating income growth of 5.2% year over year, driven by occupancy growth and rental rate increase. In fact, the company reported overall rent growth related to new and renewal leases of 23.5%.

As of Mar 31, 2017, the company’s total occupancy, including properties under development, was 95.8%, up 2 basis points (bps) from the prior-quarter end. In-service occupancy as of the same date was 97.7%, up 2 bps from the prior-quarter end. In-service portfolio occupancy in bulk distribution portfolio expanded 2 bps from the prior-quarter end to 97.9%. However, the same in the medical office portfolio contracted 1 basis point from the prior-quarter end to 94.3%.

Notably, the company concluded the quarter with a solid development pipeline aggregating 11 million square feet, total expected project costs of $875 million and 73% pre-leased.

Duke Realty exited the quarter with $13.4 million of cash and cash equivalents, up from $12.6 million as of Dec 31, 2016.

2017 Guidance

Duke Realty provided 2017 revised guidance for core FFO per share of $1.24–$1.30. The Zacks Consensus Estimate of $1.25 lies within this range.

Moreover, the company revised its current year guidance for net income and expects it in the range of 68–87cents per share.

The company also increased estimates for dispositions and development starts to a range of $300-$500 million and $500-$700 million, respectively.

Dividend Update

Concurrent with its earnings release, Duke Realty announced a quarterly cash dividend on common stock of 19 cents per share. The first-quarter dividend will be paid on May 31 to shareholders of record as of May 16, 2017.

Our Viewpoint

Duke Realty’s strategically located portfolio of industrial assets is likely to assist it in leveraging on the growing demand for premium logistic facilities amid manageable supply. Moreover, considering the building dispositions of wholly owned and joint venture properties accomplished in first-quarter 2017, the company effectively concluded its exit from this asset category.

However, the disposition efforts have a near-term dilutive effect. Also, significant competition from developers, owners and operators of commercial real estate, and rate hike add to its worries.

Currently, Duke Realty has 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 Ventas, Inc. (NYSE:VTR) , Host Hotels & Resorts, Inc. (NYSE:HST) and Arbor Realty Trust, Inc. (NYSE:ABR) . While Ventas and Host Hotels are slated to report results on Apr 28, Arbor Realty Trust is scheduled to report on May 5.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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