Duke Realty (DRE) Q4 FFO In Line With Estimates, Revenues Up

Duke Realty Corporation’s (NYSE:DRE) fourth-quarter 2017 core funds from operations (FFO) per share of 30 cents came in line with the Zacks Consensus Estimate. However, the figure came in lower than the year-ago figure of 31 cents.

Total rental and related revenues of $179.4 million for the quarter jumped 11.5% on a year-over-year basis. Further, the figure surpassed the Zacks Consensus Estimate of $175 million.

For full-year 2017, Duke Realty reported core FFO per share of $1.24 that came in 4 cents ahead of the prior-year tally of $1.20. Total rental and related revenues for the year witnessed a 7% rise from a year ago to $686.5 million.

Quarter in Detail

Duke Realty leased around 7.8 million square feet of space in the reported quarter. The company’s tenant retention for the quarter was 91.4%. Moreover, it registered same-property net operating income growth of 3.2% year over year. In fact, the company reported overall rent growth related to new and renewal leases of 19.9%.

As of Dec 31, 2017, the company’s total occupancy, including properties under development, was 93.8%, up 60 basis points (bps) from the prior-quarter end. In-service occupancy as of the same date was 95.7%, unchanged from the prior-quarter figure.

Notably, the company concluded the fourth quarter with a solid development pipeline aggregating 8.5 million square feet of space, total expected project costs of $676 million and 63% pre-leased.

Duke Realty exited the reported quarter with $67.6 million of cash and cash equivalents, significantly up from $12.6 million as of Dec 31, 2016.

2018 Guidance

Duke Realty issued 2018 guidance for core FFO per share of $1.24-$1.30. The Zacks Consensus Estimate for the same is currently pegged at $1.25.
Notably, the company’s guidance is based on the expectation of continued strong leasing and development results across the markets. Also, it expects to have redeployed all of the medical office disposition proceeds and return to normal leverage levels by the second half of 2018.

Dividend Update

Concurrent with its earnings release, Duke Realty announced a quarterly cash dividend on common stock of 20 cents per share. The fourth-quarter dividend will be paid on Feb 28 to shareholders of record as of Feb 15, 2018.

Our Viewpoint

The medical office asset sale enabled the company to turn itself into a leading domestic pure play industrial REIT. However, such large-scale asset dispositions are expected to have a dilutive effect on earnings in the near term. Additionally, the company has an extensive development pipeline that exposes it to operational risks, lease-up risks and entitlement delays.

Nonetheless, Duke Realty is well positioned to benefit from escalating demand for industrial properties by offering modern distribution facilities in strategic in-fill locations. Also, during the quarter, the company paid a special cash dividend, which was primarily the outcome from the sale of its assets. Solid dividend payouts are arguably the biggest enticement for REIT investors.

Duke Realty Corporation Price, Consensus and EPS Surprise

Currently, Duke Realty has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

We now look forward to the fourth-quarter earnings releases of some other companies like EPR Properties (NYSE:EPR) , Lamar Advertising Company (NASDAQ:LAMR) and Outfront Media Inc. (NYSE:OUT) . EPR Properties is scheduled to announce results on Feb 28 while Lamar Advertising Company and Outfront Media are slated to report on Feb 27.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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