Duke Realty Corp. (DRE) reported third-quarter 2014 core funds from operations (FFO) per share of 30 cents, in line with the Zacks Consensus Estimate and 2 cents above the prior-year quarter figure. The performance was driven by a notable rise in same-property net operating income and occupancy gains.
Total revenue for third-quarter 2014 was $291.1 million, which rose 2.3% year over year and comfortably exceeded the Zacks Consensus Estimate of $238.0 million.
Quarter in Detail
Duke Realty leased around 5.9 million square feet of space in the quarter under review. Also, tenant retention was about 58% and the company experienced overall renewal rental rate growth of 9.0%. Same-property net operating income increased 6.0% on a year-over-year basis.
As of Sep 30, 2014, on a sequential basis, the company’s overall portfolio occupancy rose 30 basis points (bps) to 93.5%. Moreover, in-service portfolio occupancy rose by 90 bps to 95.4%. By segment, on a sequential basis, the bulk distribution portfolio’s in-service occupancy rose 100 bps to 96.6%. While for the suburban office and medical office portfolios, it remained stable at 87.7% and 93.9%, respectively.
In third-quarter 2014, Duke Realty disposed two wholly owned suburban office assets in Florida for $128 million; three joint venture suburban office properties in Central Florida for $40 million (the company's share of the sales price); and 11 industrial assets in Indianapolis for $7 million (the company's share of the sale price).
On the other hand, Duke Realty started three developments projects (totaling 1.1 million square feet) for total expected costs of $100 million. This comprised two industrial and one suburban office projects. As of Sep 2014, Duke Realty had 22 wholly-owned and two JV industrial projects in its development pipeline.
Duke Realty exited the third quarter with $66.1 million of cash and cash equivalents, up from $21.2 million as of Jun 30, 2014.
2014 Guidance Revised
Duke Realty increased the lower end of its previous guidance of 2014 core FFO per share. The company now expects it in the range of $1.17 to $1.19 (prior guidance being $1.15 – $1.19).The Zacks Consensus Estimate of $1.17 for the same also lies within the new range.
Dividend Update
Concurrent with its earnings release, Duke Realty declared a quarterly cash dividend of 17 cents per share on its common stock. The third-quarter dividend will be paid on Nov 28, 2014 to shareholders of record as of Nov 14.
Our Viewpoint
Going forward, we expect Duke Realty’s focus on key markets, improved operating portfolio performance and enhancement activity to drive growth. Alongside, we expect its portfolio repositioning efforts to strengthen its bulk industrial business in key markets is encouraging given the improving fundamentals of the industrial market. In addition, the decent healthcare sector fundamentals position Duke Realty well for growth.
Duke Realty currently carries a Zacks Rank #3 (Hold). Some better-ranked REITs stocks include First Industrial Realty Trust Inc. (FR), Sovran Self Storage Inc. (SSS) and W. P. Carey Inc. (WPC). All of these carry a Zacks Rank #1 (Strong Buy).
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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