Duke Realty Corp. (DRE) reported fourth-quarter 2014 core funds from operations (“FFO”) per share of 30 cents, in line with the Zacks Consensus Estimate and a penny above the prior-year quarter figure. The performance was driven by a rise in the same-property net operating income.
Total rental and related revenue for fourth-quarter 2014 was $238 million, which rose 5% year over year. However, it missed the Zacks Consensus Estimate of $241 million.
For the full year 2014, core FFO per share came in at $1.18 per share, in line with the Zacks Consensus Estimate but higher than the prior-year figure of $1.10 per share.
Total rental and related revenue for the year 2014 was $940.2 million, up 7.6% from the preceding year. Further, it beat the Zacks Consensus Estimate of $933 million.
Quarter in Detail
Duke Realty leased around 4.1 million square feet of space in the quarter under review. Also, with a tenant retention rate of about 71%, the company experienced overall renewal rental rate growth of 11.2%. Same-property net operating income climbed 4.4% on a year-over-year basis.
As of Dec 31, 2014, the company’s overall portfolio occupancy rose 30 basis points (bps) to 93.8% on a sequential basis. However, in-service portfolio occupancy declined 10 bps sequentially to 95.3%. With respect to segments, the bulk distribution portfolio’s in-service occupancy was down 20 bps on a sequential basis to 96.4%. For both the suburban office and the medical office portfolio, in-service occupancy rate increased sequentially 20 bps to 87.9% and 94.3%, respectively.
In fourth-quarter 2014, Duke Realty disposed three wholly owned suburban office properties and three wholly owned non-strategic industrial properties for a total price of $96 million. The company also disposed few joint venture properties in Columbus, Houston, Washington D.C. and Minneapolis for $108 million.
Further, concurrent with the earnings release, Duke Realty announced the inking of a deal to divest a $1.1 billion worth suburban office portfolio spread across Nashville, Raleigh, South Florida and St. Louis. The portfolio comprises 6.9 million square feet, located in 57 acres of undeveloped land. Starwood Capital Group, in collaboration with Vanderbilt Partners and Trinity Capital Advisors, has agreed to purchase this office portfolio. Duke Realty intends to utilize the proceeds for debt repayment and funding of development projects. The deal, subject to certain customary closing conditions, is expected to close around Apr 1, 2015.
Moreover, Duke Realty acquired one modern bulk industrial facility and one medical office property, both fully leased for a total price of around $32 million. The company also started seven developments projects (totaling 640,000 square feet) for an aggregate estimated cost of $144 million. The properties comprise four new medical offices, one industrial development in Houston, one speculative office development in South Florida and one pre-leased industrial project in Dallas.
Duke Realty exited the fourth quarter with $17.9 million of cash and cash equivalents, down from $66.1 million as of Sep 30, 2014.
2015 Guidance Introduced
Duke Realty provided the guidance for 2015 core FFO per share, expecting it in the range of $1.12 to $1.20. The Zacks Consensus Estimate for 2015 core FFO stands at $1.25.
Dividend Update
Concurrent with its earnings release, Duke Realty declared a quarterly cash dividend of 17 cents per share on its common stock. The fourth-quarter dividend will be paid on Feb 27, 2015 to shareholders of record as of Feb 17.
Our Viewpoint
We expect Duke Realty’s focus on key markets, improved operating portfolio performance and enhancement activity to drive growth, going forward. Alongside, we believe the company’s portfolio-repositioning efforts, to strengthen its bulk industrial business in key markets and to shed off its suburban asset portfolio is encouraging, given the improving fundamentals of the industrial market.
Duke Realty currently carries a Zacks Rank #3 (Hold). We presently look forward to the results of other REITs – Simon Property Group Inc. (SPG), Liberty Property Trust (LPT) and UDR, Inc. (UDR) – that are scheduled to report in the upcoming days.
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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