Duke Realty (DRE) Q2 FFO Beats Estimates, Revenues Miss

Duke Realty Corporation’s (NYSE:DRE) second-quarter 2017 core funds from operations (“FFO”) per share of 32 cents surpassed the Zacks Consensus Estimate of 30 cents. The figure also came in 2 cents higher than the year-ago figure.

Total rental and related revenue for the quarter was $165.8 million, up approximately 5% year over year. However, the figure missed the Zacks Consensus Estimate of $185 million.

Quarter in Detail

Duke Realty leased around 4.6 million square feet of space in the quarter. The company’s tenant retention for the quarter was 71.5%. Moreover, it registered same-property net operating income growth of 3.6% year over year, driven by rental rate increase. In fact, the company reported overall rent growth related to new and renewal leases of 18.7%.

As of Jun 30, 2017, the company’s total occupancy, including properties under development, was 93.5%, down 240 basis points (bps) from the prior-quarter end. In-service occupancy as of the same date was 96%, down 190 bps from the prior-quarter end.

Notably, the company concluded the reported quarter with a solid development pipeline aggregating 10.9 million square feet, total expected project costs of $774 million and 65% pre-leased.

Duke Realty exited the quarter with $76.3 million of cash and cash equivalents, significantly up from $12.6 million as of Dec 31, 2016.

2017 Guidance

Duke Realty provided 2017 revised guidance for core FFO per share of $1.20–$1.26. The Zacks Consensus Estimate is the lower end of this range.

In addition, the company revised its current-year guidance for net income and estimates it in the range of $4.40–$4.66 per share.

It also raised its projections for acquisitions and development starts to the range of $700 million–$1.1 billion and $700–$900 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 second-quarter dividend will be paid on Aug 31 to shareholders of record as of Aug 16, 2017.

Our Viewpoint

Considering the completion of the medical office business sell-off, the company generated value for its shareholders and positioned itself as a leading pure play domestic industrial REIT in the making. The proceeds from this transaction were used to reduce the company’s debt.

However, the disposition efforts have had a near-term dilutive effect on the company’s quarterly results. Also, significant competition from developers, owners and operators of commercial real estate, and rate hike add to its concerns.

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

The stock has gained 7% year to date, outperforming 4.8% rally of the industry it belongs to.

We now look forward to the earnings releases of other REITs like Condor Hospitality Trust, Inc. (NYSE:CDOR) , Boston Properties, Inc. (NYSE:BXP) and CyrusOne Inc (NASDAQ:CONE) . While Condor Hospitality Trust is scheduled to announce results on Aug 7, Boston Properties and CyrusOne are slated to report Q2 numbers on Aug 1 and Aug 2, respectively.

Note: 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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