Duke Realty Corporation (DRE), one of the largest commercial real estate companies in the U.S., reported first quarter 2011 FFO (fund from operations) of $71.8 million or 27 cents per share compared to $63.9 million or 28 cents in the year-ago quarter. Fund from operations, 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.
The year-over-year decrease in FFO per share was primarily due to a rise in weighted average shares during first quarter 2011. Excluding certain one-time items, the recurring FFO for the quarter was 28 cents per share, which was in line with the Zacks Consensus Estimate. Total revenues were $386.9 million compared to $325.6 million in the year-ago quarter. Total revenues during the reported quarter surpassed the Zacks Consensus Estimate of $230 million.
The overall portfolio occupancy of the company, including projects under development, was 88.9% at quarter-end. Tenant retention for the quarter was about 70%. Same-store net operating income (NOI) during the quarter remained flat on a year-over-year basis. The company executed 5.3 million square feet of leases during the reported quarter.
In accordance with its asset repositioning strategy, which provides for increasing investment in industrial and medical office assets, Duke Realty sold non-strategic assets during the quarter, raising proceeds of $456.4 million. These included the sale of 13 office assets; 2 central business district buildings in Cincinnatiand 3 suburban office assets in Nashville; and 2 suburban office buildings in Cincinnati. At the same time, the company acquired $139 million worth of assets during the quarter.
At quarter-end, the company had 6 pre-leased medical office projects totaling over 347,000 square feet and 2 pre-leased industrial buildings under development totaling 1.6 million square feet. In addition, Duke Realty had a single joint venture medical office project totaling 406,000 square feet under development. The company started the development of 1 medical office building spanning 48,000 square feet of space during the quarter.
At quarter-end, the company had nearly $167.1 million of cash on hand and a total debt of $4.1 billion. The total-debt-to-undepreciated-assets covenant was 48.01% at quarter-end, while the debt service coverage ratio was 2.43x. Duke Realty reiterated its earlier 2011 recurring FFO guidance in the range of $1.06 – $1.18 per share.
We maintain our long-term ‘Neutral’ rating on Duke Realty, which presently has a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1-3 months. We also have a ‘Neutral’ rating and a Zacks #3 Rank for Highwoods Properties Inc. (HIW), a competitor of Duke Realty.
DUKE REALTY CP (DRE): Free Stock Analysis Report
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